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%...

Why Do FHA 221 (d) 4 Loans Take So Long?

Everybody loves the terms of an FHA deal:  high-leveraged, fixed rate, assumable, non-recourse fully amortizing financing for 35-40 years. Terms like that went out with right on, power to the people, make love not war, and Gas-$.53/gallon.  I must confess that I still try to use Daddio and swell as often as I can even though those terms pre-date the ‘70s. Still, people often get frustrated by the time an FHA deal will take, perhaps because their lender kind of soft pedals that discussion. I have found that the easiest approach to signing up business is to tell the client every bad thing I can think of that can happen with their deal, thinking that if those items don’t kill the deal, then perhaps we are on to a deal that is likely to close. In that vein, let’s outline generally the timing and process for a 221 (d) 4 new construction, which is generally mirrored with a (d) 4 Substantial Rehabilitation loan. I stress general time frames as any number of individual problems can slow a deal down-flood plain issues or other environmental issues require time to be cured.  Zoning and NIMBY (not in my backyard) problems slowed a deal of ours last year for 6 months before we got back on track.  Things extraneous to FHA should not be used as a reason why one complains about FHA. So here goes with the timing and the process: DAY 1: Signing the Engagement Letter.  Typically a small processing fee (usually $2,000) and funds for a rent comparable survey or a mini market survey will be due at this time, in order to prepare a Concept...
FHA: The Loan of Last Resort?

FHA: 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. Things were fine, if cumbersome, during the Roaring ‘20s, but when the stock market crashed and credit dried up, homes began to be foreclosed as there was no liquidity in the mortgage markets. This is when the Federal Government stepped in with the precursor to the modern single family programs under FHA.  This is when 30 year loans came into existence, with easier qualifying terms.  FHA became the lender of last resort for single family loans. But what about apartments?  How did FHA get the reputation in the apartment industry? I can only discuss back to 1974 on this one.  I was a Senior at the University of Oklahoma, taking classes in the morning and working construction in the afternoon. We always had the radio on at work and eventually the music broke for the news. Among the other stories of the day-the pressure on Nixon to resign, the horrible economy and the ending of...
Amortizations & the FHA 223 (f)

Amortizations & 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. All of these buyers are looking for cash flow, unlike my typical 221 d4 owners, who are looking for cash flow if they can get it but mostly they don’t want to feed it.  The d4 people seem intent on building as much as they can at less than 4.50% rates and then preparing to sell their units in 5 years when the units are occupied, at higher rents than were underwritten and when interest rates are 7% (or more) and cap rates are 5% (or thereabout).   As a result, when cash is dear, the little guys want leverage and a great return.  Almost all of these syndications are partnerships with  a General Partner and 2-5 people putting in money to make the deal work.   Look at the 2 examples described below:  In each case, the rents and expenses and occupancies are the same, the repairs are the same ($4,815 per unit) and the cap rates and costs are the same ($1,000 per unit initial deposit to the replacement reserve).  The variable is the amortization.   The client is putting in $356, 798 in each case, as required by the terms...