GSE & Privatization: How do you think they MF lending realm will be affected?

GSE's are going private. I read through the Treasury plan dumped on Friday, definitely sounds like Multifamily is going to be bearing the brunt of the blow.

General Outlines:
- Recap the GSE's so they have adequate Liquidity
- Increase the spreads so that it creates more competition within the private sector
- **Refocus lending on mission housing for "low to moderate income and underserved renters". **This will include reducing acquisitions that don't meet the target. Reducing the cap or going to a market % based cap. Elimination of the green program (this one needs to go for sure).
- Inquiry about removing the governmental guarantees backing the MBS originated through the GSE's. They've also floated the idea of separating the SFR from the MF into two seperate entities because they think MF can handle secondary mortgage securitization without implicit government backing.

All you monkey's complaining of the gorilla GSE's might finally be getting some reprive. I just hope that I still have a job.

We will know more once the scorecard gets released in the near future.

 

for the past 3 weeks, we are seeing 10 times more multifamily in CMBS. I am told the reason for this is largely because the agencies are hitting their caps early this year. So, cmbs, banks and life cos are trying to fill in the void. Our pricing has not changed in CMBS, so we are still in the mid to high 3's for MF and so we are being competitive. I am told agencies have increased their spreads and being very selective now. The team here would love to do more MF and not just retail and hotels like we usually do.

 

In July, pricing on a typical 75% LTV deal on 10YR terms was around 190ish (assuming some pricing waivers).

Since the end of July, the GSE's have raised pricing 6 times. Practically eliminated the green benefits and reduced all pricing waivers. Now, pricing on a typical 75% LTV deal is 265bps, with no pricing waivers. Typical coupons for deals are around 4-4.2%.

 

Price widening isn't directly tied to the cap. The pullback in green and "lowercase "a"" affordable business indicate such since both of these products fall into their uncapped bucket.

Both agencies are rushing to manage total production volume as they aim to downplay their total market share. If you read the Treasury's reform plan you will see that their recommendation implies exactly that:

"Treasury and FHFA should consider amending each PSPA to limit support of each GSE’s multifamily business to its underlying affordability mission, including potentially through a revised framework for capping each GSE’s multifamily footprint".

 
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They are still expecting to do $70B in volume a piece ($35B in capped and ~$35B in uncapped). A majority of the uncapped business was Green acquisition financing that bypasses the cap. These deals are 1. Not as profitable for GSE's and their lending partners 2. show no real benefit to help lower costs for tenants 3. Increase the GSE's market share because it gobbles up financing do to lower spreads.

The whole schtick of going private is to refocus on the GSE's chartered missions for low/moderate income housing, and reducing market share to decrease risk to taxpayers and allow other lender types to take the place.

So in reality, of the $140B that the GSE's did last year, and expect to come in around this year, I see them drastically reworking the scorecard that reduces the cap and removing green. It would not surprise me if we find out at the end of 2020 and the GSE's only did $100B in volume total. Someone is going to have to eat that $40B.

 

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