I’m 2 years out of college and have been working in GSE underwriting and now production. I read on here a decent bit about people advising to avoid the GSE groups at banks/lenders if possible. Why is that? My office does pretty much all GSE but other offices in the firm do balance sheet, Mezz, cmbs, etc... I don’t have a ton of exposure to them but pay seems comparable, GSE business is half the debt market, and loan originators for GSE loans make very good money. So why do people advise to join other lending groups if possible?
If I had to guess it would be because GSE business is more vanilla and can get repetitive. Thoughts?
Repetitive job. You’re covered at 65-70% on leverage basis, 1.25x on coverage so underwriting doesnt even matter just trend historical 3%, get fees, repeat, move on to next one. The one time it gets fun is when deals don’t size and you have to adjust those boilerplate underwriting, but this happens very infrequently.
Pay is decent but repetitiveness can be for some people. Great job starting out but learning curve plateaus after 2 years or so, wouldn’t you agree? Least that was the case for me.
I’d say though, if you’re that guy, or gal, that wants stability making decent money it’s worth sticking around.
Yeah, I agree things can get repetitive and I would like to see other asset types and different Capital structures. I’m basically trying to decide if I want to try to stick it out and get on the path to becoming an originator, cause I like my job, people I work with, etc... or start looking around for different roles outside of the GSE lending world.
I think if you like your job, like the team, and have a reasonable path to success (whatever your definition is), I'm not sure why you would want to switch. I was at a GSE and switched to a debt fund because I wanted broader exposure and happened to get higher pay. I think when we're recommending to younger people, most people aren't totally sure what they want to do so the belief is to get them the broadest experience so that they can find their natural landing spot. You can make a ton of $ in GSE, if you're comfortable with just doing multifamily then you should stay. As one originator put it bluntly, doing strictly GSE can be boring but you're paid to be bored.
Another benefit of GSEs that no one mentioned is job stability. When the market sh*t the bed in 2008, a lot of people still kept their jobs in GSEs. MF is a dependable asset class and the GSEs have very solid business models.
I was at Freddie Mac in 2009. It was a blood bath. Maybe 5% of employees at Freddie today were there in 2009.
** waiting for thdddd to come in and boast about how much volume the GSE's do **
Made my day.
I would advise against being a lender, period. Woof.
Why so? And are you referring to working for a Bank/LifeCo/GSE itself or someone like an intermediary/broker (HFF/Easdil/JLL) who deals with lenders?
More or less just some lighthearted trolling. Picture the kid in class who makes a big show about turning his or her homework in on time and tattles on you for every little thing because they love following rules above all else. That's a lender. ;)
Whats everybody take on how GSE reform is going to affect business of GSE and their approved lenders? Will origination volumes drop?
That’s definitely a possibility, I think there is a good chance Freddie and Fannie Multifamily divisions are spun off and operate as independent companies post reform. Due to the affordability crisis I believe the government will continue to incentivize them to do a lot of affordable business, but their uncapped or non affordable business which is limited to $35 billion a year could be at risk. However, I would image if they are operating as public companies and answering to share holders they are going to do everything in their power to hold on to that market share.
Reform will not happen in the near future. Fannie and Freddie are throwing off something like $23 billion a year into the U.S. Treasury. There is no political will to re-privatize the GSEs in either party.
There is no political will for now, until the GOP establishment is replaced by a blend of hard-line conservatives and libertarians, which is coming. Also, distrust in the Federal government is at all-time highs. The vast majority of productive individuals want the Federal government out of the business world and their lives.
I don't see it. Not any time in the foreseeable future. It's too lucrative for the Feds. It would take too much political capital to pull off with only marginal conservative policy benefit.
Maybe you are right. Do you think that material rising delinquency/defaults could change this?
I get so pissed because I used to work in multifamily IS and saw how these GSE's played favorites and gave preferential terms to whale developers/owners so they could expand their 9 figure personal net worth while young guys trying to get into the game couldn't qualify, were ignored, or received poorer terms. Textbook example of government intervention contributing to the rising wealth inequality and gutting of small business America.
These entities were originally created to help more Americans achieve home-ownership - now they greatly contribute to the consolidation of property ownership. It makes me furious.
GSE never had much defaults, even in the crisis.....
I could count all the defaulted loans from past 20 years with my fingers
Freddie top loss was $100M and Fannie was ~$260M in the crisis
Delinquency is 1bp, you know what 1bp is? It’s 0.01%
Of course. The GSEs only lend to rich people and blackball them if they ever default. I have no idea why this needs to be a charge of government. There is plenty of demand in the private sector to lend to rich, creditworthy people.
A few questions for you, I would appreciate your thoughts:
Is it in the spirit of free enterprise/capitalism for GSE's to cherry-pick favorite borrowers and give them preferential treatment with below market interest-rates while those entrepreneurs trying to get into the space are refused? How does this contribute to a free meritocratic system?
What business does the US Federal government have in providing loans to real estate owners? Isn't the private-sector debt space rich with abundant capital and appetite for housing?
Do you believe GSE's contribute to wealth inequality? Are you aware that these large mega-rich borrowers getting to arb yield mssively fund lobbyists who fight to continue this program? How does any of this benefit the average American citizen?
Do GSE's have a political agenda in favoring high-density urban development over low density suburban development? Why do you think this is?
GSE's have some lofty requirements to secure loans...notably NW of the KP/G's must be at least 1x the loan amount and Liquidity must be 10%. They also require US Citizens, although they do allow some Foreign KP/G's who have a good track record, still a crapshoot though.
The Federal Government does not "provide loans to real estate owners". The banks and lenders' make the loans and then sell them via single MBS or in pools. All Fannie and Freddie do is provide guaranty in the event that the loan defaults. Now it's a lot more complex, but yes Fannie and Freddie do participate in buying the loans as part of the bond investor group. They do review the loans and they are "delivered" to the GSE's who make sure the borrower is taking care of the property, etc. Once the loan's are sold via the secondary bond market, the lender who originated is no longer having to keep it on their books.
This is a push question, because the answer is yes. It's tough when you see a shitty operator who is able to get a GSE loan and states they will "improve the property" but they don't. All they do is jack up the rents. But then you also have good operators who do renovate a property or improve the conditions. Yes the rent will increase but it's purposefully done so. They turn around and take a shitty 30% occupied crime filled dumpster and renovate it and then re-lease it to better quality tenants. How it benefits the american citizen is two-fold....1. Not all American's can afford a home, but they deserve a safer place to live that's not a shithole. GSE's help fill that role, that otherwise would cost the owner to pay more for capital and might not be able to execute the business plan. 2. They provide a strong backbone benchmark of leveling the playing field. Mostly due to their sheer size and volume, it makes up a pseudo-stable floor. Some lender's would have to take significant risks in lending to everyone and that would require a TON of capital. In crunch times, that capital dry's up and makes the market worse.
I don't work for a GSE so I don't know. I would reckon they would want more high density urban development? Its tough because Fannie and Freddie also play in the SFR realm which is a whole other animal. They both have mission critical goals on a yearly basis. Going back to what I said about lower socio-economic people...they need places to live. It's tough to find enough companies out there providing these apartments, and without the GSE you could possibly see more homelessness (that's my opinion and not any fact).
Overall, the GSE's come as a mixed bag. They are easy to exploit, but they provide a good service to an underserved part of the economy. You don't hear about Wells Fargo balance sheet lending for a property in the hood very often. It would be even harder without the FHFA or HUD involved. Additionally the GSE's model of selling to secondary bond investor's helps the overall economy because the LifeCo's and Hedge Funds and Big Bond Funds NEED places to park capital. History has shown that mortgages (as a whole) are a relatively safe place to do so. Even in 2008, the thing's you saw were mainly for subprime mortgages and a smaller part of the whole pie. In a downturn...People will stop buying shit (retail) before they lose their job (office) but they will always need a place to live (Multifamily). Top of the list of needs: 1. Water, 2. Food. 3. Shelter.
Don't get me wrong, I think that GSE's could probably undergo reform, but I don't think they will ever go back to private. The Gooberment won't give up a steady stream of billions in income, because that means it must be made up from other places. Our national debt expense is increasing and taxes have been cut. Plus the 30-year mortgage (originally a GSE product) is the bedrock of american's net worth and makes homes affordable. How many people do you know who's majority of NW is tied up in their almost paid for house?
One more question - are you aware that your biggest clients (many of who my old firm represented as an intermediary) laugh about how fucking stupid your entire platform and process is and how much of a joke it is that they can borrow risk-free at the rates you offer?
We would sit and crack up about how every big developer is trying to get into the "green" space so they can find loopholes to do the absolute bare minimum needed to get the special terms.
I agree with you 110%. I think it's egregious how the GSEs behave, how they've unnecessarily created a near-monopoly out of multifamily lending and, with the power of gov't, given favorable terms to rich people to allow them to get even richer.
You and I are both conservatives, but we reject crony capitalism. There are more egregious forms of cronyism out there, but this is just all so unnecessary.
Grab popcorn before continuing from this point…
Edit: hmm that didn’t post where I wanted it to.
My buddy who is a GSE originator makes above $300k in his mid 20s. He works a TON though and is in a really good spot and is being groomed to take over his market. When you're one of the top guys at shop/market, i've heard you can pull in compensation in the low millions of $ annually. And it's a very stable job.
But it sounds boring looking at the same product type all day every day.
Yeah the originators at my shop definitely make some serious money, but having GSE lending be the only thing I ever do in real estate besides possible personal investing on the side sounds very limiting. The good news is my compensation is good for my market and I’m 24 so I have plenty of time to figure this stuff out. Maybe I’ll end up in REPE (if I work my ass off networking), maybe I’ll stick with originations, maybe I’ll go to trade school become an airplane mechanic, buy a shit ton of land, forget this forum, and fix up old planes in my backyard on the weekends.
Hell yeah brotha. Love seeing this type of thinking, do what YOU want.
I wish I had ignored so much of this "keep the door open for Blackstone in case you want to work there later" nonsense when I was younger. That guy below who asked "what about repe?" -- fuck that guy. Move up fast, move up now when you're young. Boring is ok, making money doesn't have to be intellectually stimulating. You can make a ton doing agency loans. Later when you're making 700k a year it will be w lot easier to change paths or dabble in other shit.
He works for freddie/fannie or is he at one of the GSE approved lenders? Does he have a niche like small balance?
GSE lending covers a wide array of multifamily business, including affordable housing (bonds, LIHTC, Section 8), workforce housing, manufactured housing, revolving credit facilities, small balance loans, conventional loans, mezz debt, other subordinate and/or soft debt, new construction, and renovation, with the wrinkle of CMBS in there as well. Maybe the servicing and origination is more interesting than the underwriting, but I've got to think that there is plenty of interesting wrinkles to keep your attention.
GSE's could eventually be privatized. There is no reason why the American taxpayer should backstop non-recourse welfare loans to developers. Ridiculous.
I agree entirely, but where is the political will to give up $23 billion per year to the Treasury? There is zero will among Democrats and little will among Republicans.
What about REPE ? If you spend too much time in lending, it's hard to leave ..
I am in GSE lending and am struggling to find REPE firms in DFW. That being said, I am also not looking for an analyst position since I am about to get promoted to VP at my shop. I'd prefer to work inside MF, but any recruiters just hit me up for asset management which I am not looking to move into. I'd much rather work on the debt side of a MF REPE.
Don't go into RE asset mgt .. it is valuable but underlooked from the investments development side..you basically execute and follow up other people's investment plans
I've seen people from the investments team going in debt to get managerial experience and once VP switching back to higher investments role .. get your title and hit your network
How much wholesale lending goes on in the GSE space? I know of Sabal Capital, but are there others? There are a lot debt brokerage shops out there but only so many approved GSE lenders. If you are a broker and have a client who is a good fit for one of the GSE programs but you don't have access do you just hope your client does not know about it?
Somebody correct me if I'm wrong, but if you're a multifamily debt broker, assuming you have the relationship, you can definitely broker out to approved lenders. I know at my previous shop we used brokers to shop dozens (literally, dozens) of different loan products and lenders, which included the GSEs.
What do you mean by dont have access to? A broker can reach out to the two dozen or so GSE approved lenders. And in my experience the GSE approved lenders will be glad to pay the brokers too, so its a win-win.
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