The Fiscal Cliff, the Sequester, and Multifamily Interest Rates
With the election over the news turns to how Washington will resolve the debt ceiling, the Bush era tax cuts, our looming federal debt and the draconian sword of the Sequester, which looms to potentially cut fully a third from the Federal Budget, including Defense.
This is high drama, as ideology is tested against the realities of needing more money. A new Congress, perhaps even more divided than the last one, will be sworn in, and while there is talk of a down payment, say $80 Billion on the debt in exchange for a 6 month delay in resolving the issues, posturing seems to be the initial response in what will prove to be an ugly process. (more…)
FHA Apartment Loan Financing
While the final numbers are not yet in on the FHA Apartment Loan financings for fiscal year 2012, through 11 months, the results are as follows:
Firm Commitments: 2,073 versus 1,669 for FY 2011
221 (d) 4 Apartment loans (New Construction and Substantial Rehabilitation): 190 versus 216 for FY 2011
223 (f) Apartment loans (Purchase and Refinance): 1,875 versus 1,444 for FY 2011 (more…)
Should I Get Busy & Refinance My Apartments?
Over the last two years, Ben Bernanke has provided comfort to the mortgage market and real estate owners regarding the low, sustained interest rates we could count on, first through 2013 and now into 2014.
My cynicism at first was heightened. I kept thinking that sometime after the 2012 elections, we would be receiving the news on the Wednesday or Thursday after election Tuesday that rates were moving north. (more…)
Why do we have Concept Meetings?
A couple of years ago, a developer went into an FHA office and pitched a deal to the staff. This deal had the American Flag all over it-affordable, public good, a novel approach to handling foreclosures-something you would want to sing God Bless America over. The staff applauded his initiative and encouraged him to the extent they could, saying something like, “this is the kind of deal we should be doing”. Nothing formal took place, just a happy meeting. Nothing was in writing.
3 months later and the process had changed. These type deals were not even on FHA’s radar and the requirements had changed. No big deal except the developer, in the glow of the meeting, had spent several hundred thousand dollars in due diligence on a program FHA could no longer deliver. (more…)
Land Value and the 221 (d) 4 Program
How are FHA and Al Capone the same? Well, let me share a story…
One night in the 1920s, Al Capone went to an Italian restaurant in Cicero, Illinois. The Capone entourage sat down, the waiter came up to the table to get the drink order and as he was leaving, Al Capone slipped the waiter a $100 bill, saying “take good care of us”.
Five, Ten, Fifteen minutes went past and the waiter hadn’t returned. Al went back into the kitchen and said, “hey, where’s my waiter”? One of the help said “He came back here holding a $100 bill, and said ‘I quit this lousy job’ and walked out the back door”.
The Answer: Neither Al Capone nor FHA wants the person they are doing business with to get the benefit of the bargain before they get their bargained-for value. (more…)
Repair vs. Replacement
If you are considering acquiring or refinancing an existing property with some age on it, you might be in the market for an FHA 223 (f) loan. These loans offer fixed rate, assumable, non-recourse financing for up to 35 years. But to protect themselves and the residents from the owner not being able to make capital improvements over time, the loan establishes an initial deposit to a replacement reserve and an ongoing contribution to the replacement reserve. (more…)
Organizational Costs
For people new to the 221 (d) 4 program, some of the terms are unique to FHA, and the items they entail are often unclear. Making certain you have your soft costs included in the loan is important if you expect to get them paid through the loan. One of those categories that cause some confusion is “Organizational Costs”. (more…)
What is BSPRA?
One of the beautiful things about FHA financing is its continuing homage to the 1970s. These loans have features that pre-date Disco, with fixed rate loans extending out 35 to 40 years…and non-recourse at that.
I remember early in my career a borrower saying the following: “If you want me to guarantee that I will work as hard as I can for this property to succeed and that I will follow your rules, I will do that. If you want me to guarantee the economic health of Dallas over the next 35 years, I can’t do that.” That to me explained the importance of non-recourse debt better than any explanation before or since. (more…)
Amortizations and the FHA 223(f)
Let’s talk Amortizations and the FHA 223 (f)
I am getting a lot of calls by small investors interested in buying 16 to 100 unit properties. Some have money; some do not. The properties are ranging from 1930s to 1970s, mostly, with most being 1960s and 1970s product. They are typically over 85% occupancy with average rents for 1 and 2 bedroom unit properties averaging rents of $550-$600. These are found in Texas, Oklahoma and Kansas.
The Loan of Last Resort
FHA was once thought of as the lender of last resort, but now is often is the first and best option for many borrowers. So what changed?
How did FHA get the reputation for being the lender of last resort?
In the pre-1930s, single family homes were financed by banks. These were 3-5 year loans typically, that caused a family to begin to worry about refinancing them the day the loan closed. Maturity defaults were always looming. Banks would extend the loans, add costs in the form of a second and maybe extended for 2-3 years. This cycle continued, until people were having 4 or 5 loans that were renewing every 6 months. (more…)
About Daniel R. Crain
Danny Crain has spent most of his 30-year career involved with apartment financing and mortgage banking. Just prior to founding Crain Mortgage Group, LLC in 2009, Danny spent 10 years as Senior VP for GMAC Commercial Mortgage Company and was successful in closing over $500,000,000 in FHA multifamily loans. His career closings, however, well exceed $2 billion.
Intimately involved in multifamily financing since 1981, Danny actually helped close the third ever coinsurance loan in the country in 1983, making him a bit of a mortgage pioneer. Other work experience includes originating FHA loans in the Southwest for TRI Capital, overseeing the liquidation of 580 subsidiaries of failed Savings & Loans as an Asset Manager for the Resolution Trust Corporation, and employed by Fannie Mae in the Multifamily area as a Senior Investment Officer for the seven state area centered in Texas.
Danny earned his Juris Doctorate in 1977 and is a member the Texas Bar Association, Oklahoma Bar Association and the California Bar Association. He also maintains his real estate broker's license in both Texas and Oklahoma.
