Falling FHA Multifamily Mortgage Rates?

Will Economic Indicators Affect FHA Multifamily Mortgage Rates? Today the Jobs report stated that 148,000 non-farms jobs were added in September when the consensus expectation was 185,000 jobs were to be added.  This gap has led the 10 year Treasury yields to drop from 2.60% to 2.52%, the lowest they have been since mid-July. So what does that mean for FHA Multifamily rates? As I said in an earlier blog post, two things are keeping rates high. First, there are a lot of REMICs that are still underwater, needing the high interest rates of new securities to leaven the entire REMIC so as to increase the weighted average coupon from earlier purchases.  This hangover continues. The security buyers are trying to hold investor coupons above 4% so as to be able to curtail losses on those underwater loans bought before the Bernanke pronouncements in May. Secondly, the investors in the securities have been expecting higher yields next year, based on tapering the purchases by the Fed. This made it likely that next summer’s rates would be much higher than today’s rates, causing investors to want the higher rates expected next year. Securities have been priced accordingly. With today’s Jobs report, and the weak data probably coming out over the next few weeks, it is likely that the Qualitative Easing will continue.  If rates stay low, the large spreads, especially in new construction under the 221 (d) 4, will have to narrow, bringing rates down. As an interested party, what should you be looking for as a sign of lowering rates?  If the 10 year Treasury bond continues/stabilizes in the 2.50%...
What is BSPRA?

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. But the topic today is one of the most misunderstood aspects of FHA new construction financing, that being Builder and Sponsor Risk Allowance.  Under no situation can the Sponsor/Developer obtain a developer profit inside the loan.  Under certain circumstances, it is better to have the Builder/Contractor paid inside the loan, although in 30 (+) years of FHA Multifamily financing, I have only closed 2 deals with SPRA, Sponsor’s Risk Allowance, where the contractor gets paid inside the loan.  Why is that?  Because the leverage almost always dictates the Developer and Contractor be paid outside the loan. Basically, BSPRA is a credit added into the costs of the 221 (d) 4 loan to recognize two legitimate costs that will not be paid inside the loan:  the developer/sponsor profit and the contractor profit.  Try to imagine the circumstance FHA was trying to avoid when BSPRA came into being: A mortgage banker would come into the FHA Office and...