2009-04-01, 09:58

Administration's Plans for Buying Trouble Loans

By: Multifamily Real Estate Industry Team
In an article entitled "Administration’s Plans for Buying Troubled Loans: What Does it Mean for MultiFamily," Multifamily Housing News observes that the Obama Administration’s plan to increase activity in the credit markets and lower interest rates will be good news for the multifamily housing industry. The Federal Reserve plans to use part of $1 trillion that has been targeted to reinvigorate the financial industry to purchase Commercial Mortgage Backed Securities (CMBS) and infuse capital into banks through asset purchases. This will provide some relief, most likely through lower interest rates and increased liquidity. As with all complex plans, the devil will be in the details.

It simply is too soon to breathe a sigh of relief and expect markets to normalize. There are a number of unknowns. First, as has happened with the bailout of troubled banks, increasing banks liquidity and improving their balance sheets does not guaranty that they will begin lending large amounts of money. Further, several portions of the plan hinge on partnerships between private equity and the government. This will only be a game for substantial players. It remains to be seen whether these players will have enough faith and confidence in the government to risk the large sums that the plan requires. Finally, even if some liquidity is returned to the CMBS market, it may turn out that the number of purchasers of CMBS securities has been permanently and substantially reduced. This would both reduce the volume of transactions and likely lead to increased interest rates.

(This entry is posted by Erica Harvey, a member of Womble Carlyle's Real Estate Development group.)


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