W&D Sees Sudden Pick Up In GSE Originations. Here's Probably Why.

BETHESDA, MD—It is not always a happy event when a company issues a revision to its quarterly earnings statement  -- there is a good chance it is a downward change. Not so with Walker & Dunlop's recent statement regarding its loan origination outlook for the third quarter of 2015, which it provided with its second quarter earnings on Aug. 5.

Last week, W&D announced it was revising upward its loan origination volumes from the GSEs significantly, in large part due to increased activity from Fannie Mae.

During its second quarter earnings call, W&D said expectation for Fannie Mae loan originations in the third quarter were in the range of $600 to $800 million and Freddie Mac loan originations in the range of $1 to $1.2 billion.

Since the second quarter earnings call, the company's GSE loan volumes increased significantly, and it now expects third quarter 2015 Fannie Mae loan origination volumes to be between $1.1 and $1.3 billion and Freddie Mac loan origination volumes to come in at the high end of the $1.0 to $1.2 billion range.

"After an extremely active refinancing and acquisitions market in the first half of the year, we saw a slowdown in GSE loan originations at the beginning of the third quarter," said Walker & Dunlop's Chairman and CEO Willy Walker in a prepared statement. "Since then, we have seen an increase in our Fannie Mae volumes, which will positively impact this quarter's originations."

Walker didn't give the reason for the increase in this statement but he did provide a hint in the Q2 earnings call held in August.

"Due to the high volume of financing Fannie and Freddie did in Q1 the Federal Housing Finance Agency revised the 2015 score card in May to reclassify a significant volume of loans as affordable and therefore not to be counted against the $30 billion market rate lending caps established in the score card," Walker told investors during the call.

"The expanded exclusion provides much needed liquidity to the multi-family real estate lending market while focusing the GSEs on their core mission of providing financing to work force housing across the country."

"While no data has been released by the GSEs or FHFA it is our belief that the adjusted definitions will enable each GSE to originate over $40 billion of multi-family loans this year. During the second quarter we saw the GSEs increase pricing in order to slow thei r pace of business leading to questions about the impact on volumes in the second half of the year," he said.

What the FHFA did, specifically, was widen the categories that can be excluded from the GSEs multifamily lending cap, giving Fannie Mae and Freddie Mac more leeway in how they underwrite affordable housing deals -- and hence more capacity in general for multifamily lending.

  For example, it allowed the GSEs to exclude a pro rata portion of multifamily loan amounts, based on the percentage of units in a property affordable to renters at 60% of area median income. It also allowed assisted living units for seniors to be excluded as long as they are affordable at 80% of area median income and it increased the income threshold for affordability in higher cost areas to 80% of area median income and for very high cost markets it raised it to 100% of area median income.

As for the FHFA's scorecard for 2016, Walker is betting that it will publish before the end of the year and that it will be similar to the 2015 score card, in establishing lending caps of $30 billion for market rate lending while excluding from the cap small loans, manufactured housing loans and affordable loans.

With the exclusions, Walker estimates that Fannie and Freddie will both have the capacity to lend more than $40 billion annually.