The article below discusses the anticipated activities of Fannie Mae and Freddie
Mac during 2009. Despite their takeover in 2008 by the Federal Government they
both have continued to operate without many changes since the takeover. The
government’s intentions are to reduce the size of the two entities but it seems
unlikely until the current financial difficulties are solved since they both
continue to be amajor force in financing not only single family homes but also
apartments.

AGENTS OF CHANGE

APARTMENT FINANCE TODAY - January/February 2009

Fannie Mae and Freddie Mac look to hold steady as they undergo their own transformations.

BY JERRY ASCIERTO

Where would the multi family industry be without Fannie Mae and Freddie Mac? Fortunately, we won’t have to find out in 2009. The agencies will continue to provide liquidity to the market, albeit at tougher terms than a year ago. Fannie Mae and Freddie Mac were offering 10-year loans in the 6 percent to 6.5 percent range in early December. A 1.25x debt-service coverage ratio is now as low
as they are willing to go, and leverage levels have fallen from 80 percent to closer to 70 percent.

Rates from the agencies have been kept at reasonable levels thanks to the low 10-year Treasury, a benchmark used to set permanent loan rates. The yield on the 10-year Treasury tumbled from around 4 percent at the beginning of November to 2.7 percent in early December. And rates from Fannie Mae are expected to hold fairly steady in 2009. Says Byron Steenerson, president of Alliant Capital, a Fannie Mae lender, “We are budgeting based on a 50-basis point rise for next year.” Freddie pricing has been somewhat inside of Fannie’s in early December, featuring rates closer to 6 percent. But both of the agencies have raised their lender spreads in concert with downward movements in the 10-year Treasury to keep rates at a constant level.

The re-pricing and underwriting changes reflect concern for the economy as well as a lack of competition. Many life insurance companies and banks scaled back their real estate lending in 2008, and their loan terms are expected to get tougher next year. “I wouldn’t look to insurance companies to be bigger lenders next year; in fact, there will probably be fewer in 2009,” says Robert White, president of market research firm Real Capital Analytics. Insurance companies, traditionally very conservative on leverage, will likely require higher degrees of equity to be in any deal they fund in 2009. Life companies will feature loan-to-value ratios of between 50 and 60 percent for permanent debt, and they will likely continue to cherry-pick only the strongest deals.

“Most of the insurance companies don’t know what their credit box is yet or what their pricing is going to be,” says Phil Melton, a senior vice president at Grandbridge Real Estate Capital. “You’re going to see lower debt percentages and significantly more equity requirements on the borrower.” Local and regional banks unscathed by the sub-prime crisis will continue to be a source of loans under $10 million, though the real estate appetite of larger banks is unknown, as they struggle to balance their balance sheets.

Securitization push

Beginning in 2010, Fannie and Freddie will diminish their portfolios by 10 percent annually, eventually shrinking from $850 billion to $250 billion. To do so, both will place more emphasis on their securitization programs: Fannie’s somewhat dormant Mortgage-Backed Securities program and Freddie’s Capital Markets Execution conduit program, which is under development. But many multifamily borrowers prefer portfolio executions because of their flexibility. Portfolio loans are held as investments on the agencies’ books, as opposed to securitized offerings, which sell mortgages as securities. Borrowers looking to amend certain terms after rate-locking, for instance, have a much easier time doing so with a portfolio execution. “Securities just inherently have limited flexibility in individual loan terms,” says David Cardwell, vice president of capital markets at the National Multi
Housing Council.

Additionally, tying Fannie and Freddie’s fate to the securitization market would severely limit their offerings. “If Fannie and Freddie were told today that they had to execute every multifamily loan in securities, they wouldn’t be doing business,”says Cardwell.

TWO INTERESTING REPORTS

Two reports just recently released provice some interesting insights and

information about commercial real estate in the U.S.

The 19th annual report from Integra Realty Resources entitled “IRR-Viewpoint 2009″.

contains many statistics and other information about the 4 major sectors of the

commercial real estate market - Office, Retail, Apartment and Industrial - in 60

metropolitan areas in the country. It can be downloaded free from their website -

www.irr.com

The other report is the 2009 National apartment Report by Marcus & Millichap, a

major national commercial real estate brokerage firm which specializes in

investment properties. It has data about the national market and rankings of their

top 43 apartment markets in the U.S. It also describes each of the 43 markets in

some detail. This report can be found at their website - www.marcusmillichap.com. You will need

to register on the site but this eport and a number of others are free.

This article from the National Real Estate Investor compares the performance of
rents and vacancy factors in 3 sectors of commercial real estate - apartments,
office space and retail space. Apartments are still outperforming the other
sectors and should continue to do so in the near future.

The Apartment Sector Begins to Feel the Pinch

Jan 7, 2009 3:34 PM, By Poonkulali Thangavelu, National Real Estate Investor

In a year in which the economy was hit by bad news on a number of fronts, the
commercial real estate sector reacted with a negative performance in major property
sectors. Even the apartment sector, which received a boost from troubles in the
housing market, was not spared. In the fourth quarter of 2008, apartment, office
and retail properties nationwide all experienced a rise in vacancy rates and a
decline in effective rents, according to research firm Reis. These property types
also saw more space coming on the market than was absorbed, making for negative net
absorption of space.

In the apartment sector, even after accounting for the positive effect of a
downturn in homeownership and buyers sitting on the sidelines, the vacancy rate
rose 40 basis points to 6.6% in the fourth quarter. Effective rent in the sector
was down 0.4% in the fourth quarter. Asking and effective rents for apartment
properties have both turned negative in the fourth quarter for the first time since
the first quarter of 2002. “Landlords are lowering the amount of asking rent as
well as increasing the level of concessions they are willing to provide in an
attempt to prop up occupancy levels,” says Victor Calanog, Reis director of
research.

The office sector saw a national vacancy rate of 14.4% in the fourth quarter, a 70
basis point increase from the third quarter. This represents the largest quarterly
jump in the office vacancy rate since the first quarter of 2002. At its lowest
point in this cycle, the national office vacancy rate was at 12.5% in the third
quarter of 2007. “The upward trend in the national [office] vacancy rate is
expected to continue into 2009 and may spill over into 2010 as large financial
services firms, among others, find a new equilibrium both in terms of employment
levels as well as ownership structure, given the ongoing wave of mergers and
acquisitions,” says Calanog. Effective rents in the office sector were down 1.2% in
the fourth quarter. For 2008, effective rents were up a mere 0.9%.

And as consumer confidence declined to new lows in 2008 and consumers cut down on
discretionary spending, the retail sector, too, was hard hit by recession.
Neighborhood and community shopping center properties saw vacancy rates gain 50
basis points and rise to 8.9% at the end of the fourth quarter from third quarter
levels, the largest quarterly rise in vacancy since 1999, according to Reis.
Taking into account regional malls, the vacancy rate rose 50 basis points as well
to 7.1%, the highest vacancy rate since Reis began tracking regional malls in 2000.
Effective rents on neighborhood and community retail properties were down 0.9% in
the fourth quarter, while regional malls saw a decline of about 0.3% in effective
rents.

Prosper Weekly Real Estate Podcast 1-26-09

In this week's recording, we discuss some the resources available to you through the Success Center.

Are you looking for a good area to invest? I frequently get asked by investors where they should look for deals. I always tell people to start in their own local markets where they can “see, touch and feel” the deals. However, if you have an itch to reach out of your local area, below are some places you may want to look.

What I like most about this note is the phrase “motivated sellers are slashing prices.” That is music to my ears. Investors (you) love motivated and flexible sellers!

Las Vegas Leads Cities for Top Housing Deals

Property values are down, but in some cities sales are up because motivated sellers are slashing prices and buyers are getting deals.

“There’s a pretty active housing market, it’s simply at a lower-priced inventory,” says Michael Feder, chief executive of Radar Logic, a New York derivatives firm.

In San Diego, Calif., transactions are up 90 percent as buyers compete for available bargains.

“Unlike stocks, housing has intrinsic value,” says Barry Ritholtz, chief market strategist of Ritholtz Research, a New York research firm. “Outside of Love Canal or Detroit, house prices do not go to zero.”

Here are the cities where sales are up the most in the last three months:

• Las Vegas
• Sacramento, Calif.
• San Diego, Calif.
• Los Angeles
• Detroit
• Phoenix
• San Francisco
• Washington, D.C.
• San Jose, Calif.
• Atlanta

I came across the note posted below and wanted to highlight a few things. Firstly, it is good to keep your eyes out for different offerings like this by different companies. In general, it’s just good to know what is going on in the market and what different people are doing.

Secondly, there may be good opportunities that arise from these types of offerings.

Thirdly, it’s always good to be around and associate with other investors. There is much to be learned from meeting and talking with other investors and learning about their business. How are they finding deals? How are they funding deals? What types of strategies are they using? Also, there is always the opportunity of partnering with these investors, doing deals together, having them as wholesale buyers, etc.

Novel Home Sale Strategies Drive Bargains

In California, Florida, Las Vegas, and other housing markets hit hard by the downturn, real estate brokerages are renting buses and taking interested buyers and investors on tours of foreclosed properties.

Those taking the $20 tour offered by the Keenan Carter Group in Pismo Beach, Calif., partake in refreshments while receiving information on mortgage financing and how much a particular home could generate in rental income. Meanwhile, the Santa Clara County Association of REALTORS® is holding “The Biggest Open House Day of the Year” in California’s Silicon Valley on April 13, with incentives given to buyers willing to make on-the-spot offers.

Besides bus tours, association President-elect Quincy Virgilio also expects the housing downturn to make such renew the popularity of financing options such as equity sharing - in which an investor covers the down payment for the party planning to occupy the home.

Source: Realty Times, Broderick Perkins

I normally do not like posting long articles but I’m going to make an exception. A seemingly insurmountable obstacle to buying property in today’s market is getting financing and a large part of getting financing today is down payment money. This article discusses how properties can still be purchased with low down payments. Through the Federal Housing Administration (FHA), qualified buyers can still secure loans with just 3-5% down.

This should be very encouraging news to those of you that thought you would need to come up with 10-20% down payment.

NEW YORK (CNNMoney.com) – The credit crunch has made it hard for anyone to get a loan these days - and borrowers who can only make a small down payment are facing even tougher odds.
But it’s not impossible to land a low-down payment loan. The Federal Housing Administration (FHA) is actually still offering 3.5%-down mortgages to qualified buyers, even as the subprime loans that these types of borrowers had traditionally relied upon have dried up.

The FHA has been flooded with applications; in 2008 it helped 630,000 borrowers buy homes, most of them using low-down payment loans. “People can get an FHA loan with very little out of pocket,” said George Hanzimanolis, a mortgage broker in Pennsylvania and past president of the National Association of Mortgage Brokers.

He recently arranged an FHA mortgage for a client last month for $242,500 on a $250,000 home. The interest rate came in at 4.75% for a 30-year fixed rate loan, yielding a monthly payment of only about $1,265 - just $15 more than the rent the buyer had been paying on a smaller home. The tax savings will more than offset that, as well as his property taxes and insurance.
No wonder the program is flourishing.

How to get an FHA-insured mortgage

Applying for an FHA loan isn’t difficult, and the parameters for those who qualify are fairly straightforward. Start by calling a mortgage broker or an FHA-approved lender. You can search for an FHA lender on the Web site of the U.S. Department of Housing and Urban Development.

For lenders, income is the main factor in determining who qualifies for an FHA loan. The agency’s guidelines dictate that that buyers spend no more than 31% of their gross income on mortgage payments. Lenders do look at buyers’ credit histories, but the interest rates that FHA borrowers pay aren’t actually based on their credit scores, as they are for most home buyers, according to Keith Gumbinger of HSH Associates, a publisher of mortgage loan information. Instead, FHA borrowers get the same interest rate that any conforming borrower with a good credit score would receive.
One catch: Borrowers with scores of 500 or less are generally required to pony up a down payment of 10% rather than the 3.5% minimum.

The FHA also charges insurance premiums, which pay to cover any defaults. Borrowers pay an up-front fee of 1.5% to 2.5% of the dollar-value of loan, as well as an annual fee of 0.5%.
So a buyer of a $200,000 home would be expected to come up with a $7,000 down payment as well as $5,000 for the initial insurance premium. The borrower’s monthly mortgage payment would come to about $1,096, including the 0.5% ongoing fee, at an interest rate of 5%.
And there is a limit to just how much can be borrowed. In most parts of the country, FHA borrowers may not finance more than $271,500. In high-cost areas like New York and California, the cap is $625,000 for single family homes. In Hawaii, the cap is as much as $721,050.

And there is even more help available to lower-income home buyers from the government-funded American Dream Down Payment Initiative program. That fund makes $200 million a year available to help low-income home buyers pay for down payments, or to make home repairs. To be eligible, a borrower’s income must be no more than 80% their area’s median income. And the grants may not exceed $10,000, or six percent of the home price, whichever is greater.

By Les Christie, CNNMoney.com staff writer

Prosper Weekly Real Estate Podcast 1-19-09

In this update we discuss a recent article indicating that sales volume is picking up in several key markets around the nation as bargain hunters emerge.