NEW ORLEANS—Multifamily mortgage servicing—never an easy undertaking—may get even more challenging as portfolios shift and shrink and investors demand more loan surveillance, analysts said.
“We’re finding 2014 to be a tough year,” said Bob Shean, COO of M&T Realty Capital Corp., speaking here at the Mortgage Bankers Association‘s Commercial/Multifamily Servicing and Technology Conference. Shean said some lenders report higher payoffs and lower retention rates, leading to shrinking portfolios.
Jon Boone, SVP and head of asset management with Grandbridge Real Estate Capital, Charlotte, NC, said even though his company’s portfolio remained roughly level with the past few years, its components have shifted.
“We’ve seen growth in our insurance company portfolio as opposed to our agency portfolio,” Boone said, predicting this trend will continue. “There’s much more ahead in 2014 and 2015. We’ve had insurance company lenders become much more competitive in multifamily lending overall.”
“Our issues have been market driven as well as regulatory driven,” said Michael Lipson, SVP of multifamily asset management and operations with Freddie Mac in McLean, VA. “We’re shifting from portfolio lending to basically a CMBS conduit shop. Our portfolio has been mandated to shrink. But the real thing that’s shifting is that our ‘K’ business—our securitization business—is significantly up.” Lipson said Freddie’s securitization portfolio moved ahead of its held-for-investment portfolio this year.
Robert Walton, VP of debt and equity management with Fannie Mae in Washington, DC, said his company has also seen a shift from its cash balance sheet business to CMBS execution. He added that the agencies dominated multifamily lending in 2008 and 2009, “but the market has become competitive again,” he said. “That’s why you see this reduction in production; it’s because borrowers have so much to choose from now and they have the opportunity to be more selective and to weigh the offers they are receiving.”
“It’s good to be a borrower today; it’s tougher to be a lender,” Lipson agreed.
Shean predicted the volume of maturing HUD and GSE mortgages will fall this year compared to 2013. “Only 3%—$12.7 billion—is maturing this year, a small percentage compared to what we see in the future,” he said. “There are just not a lot of loans rolling up to their maturities.”
That maturity figure should pick up in ’15 and over the coming years, Shean said. “Four or five years ago, I would have viewed this upcoming wave of maturities with apprehension,” he said. “Worries about the economy, the future direction of interest rates and multifamily fundamentals would have made me anxious.” But today, he said, the wave of maturing loans can lead to apprehension or to positivity—or both.
“I see it as a non-event,” Lipson said. “We do a significant amount of surveillance effort. If you look at the bigger picture of what is going on in the economy, what’s going on regarding multifamily is good. I think the next couple of years look pretty good for the majority of our loans.”
Walton said loan surveillance has increased significantly lately. “Years ago, a property visit might uncover several problems,” he said. “Now that surveillance has been improved and we are working better with lenders, these visits are yielding few if any issues.”
“Investors don’t want to be surprised,” Lipson agreed. “So you have to provide them with surveillance that gives them information. Our world is about data and information and the only way you can get that data is to collect it through the surveillance process.”
Lipson said most borrowers understand loan surveillance, “because many of them are in the public market where they have to provide data to their investors on the equity side. Loan surveillance is here to stay, and it will get even more detailed. The process of surveillance became the distinguishing feature of servicers: who could provide more info in a timely basis that I can use? It’s really all about not being surprised as an investor.”
Reprinted with permission from MBA NewsLink and the Mortgage Bankers Association.