MBA Talks Real Estate Finance

The Mortgage Bankers Association shared its annual assessment of the commercial real estate industry during its recent State of the Real Estate Finance Industry media conference call, during which the association also discussed its legislative and regulatory agenda. So what's going on in the commercial real estate finance industry? In a nutshell, uncertainty about jobs and the economy.

January 28, 2011
By Barbra Murray, Contributing Editor

Courtesy Flickr Creative Commons user skys the limit2

The Mortgage Bankers Association shared its annual assessment of the commercial real estate industry during its recent State of the Real Estate Finance Industry media conference call, during which the association also discussed its legislative and regulatory agenda.

What’s going on in the commercial real estate finance industry? In a nutshell, uncertainty about jobs and the economy.

“The markets are still tough, but they are starting to gain momentum,” Michael Berman, chairman of MBA, said about the commercial and multi-family sectors. “We need sustained job growth to right those markets.”

He elaborated on the state of multi-family housing mortgages during the question-and-answer segment of the call. “At this point, while lenders are getting back into the markets, it’s certainly a more cautious lending environment than we saw three or four years ago. The trend is certainly positive, but lending criteria are clearly more conservative than they were in the last part of the cycle.”

Cautious lending environment or no, more financing will become available for apartment properties this year, he said. “We’ll see more liquidity and more construction started in the multi-family sector.”

As for MBA’s advocacy agenda for this year, it is chock-full of issues that, if appropriately addressed by the powers that be, will play a big role in jump-starting the real estate markets, according to MBA. Among the pressing issues is the implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which includes mortgage reform.

“The law sets out a skeleton and now we’re in the process of putting meat on that skeleton,” John Courson, MBA president and CEO, said regarding the new rules that will be part of the legislation’s enactment. “About 100 of those rules will specifically affect real estate finance.”

Courson asserted that the big concern is that a set of rules will emerge and then another set will surface a few months later, leading to a great deal of confusion and counter-productivity. MBA has its ideas about the various topics covered in the Dodd-Frank Act, including risk retention. As MBA notes in a document outlining its legislative and regulatory priorities for 2011, Dodd-Frank requires federal banking agencies and other regulators to create rules obligating securitizers to retain a portion of the credit risk of assets they securitize and to determine the allocation of risk between the originator and the securitizer. As it pertains to commercial real estate, Courson pointed out during the call that MBA backs provisions that would “have risk retention at a lesser degree than 5 percent.”

Also on MBA’s priority list is the future of the government’s role in the secondary mortgage market. Few players in the federal government and the real estate industry argue against the need to address the sad state of financial affairs concerning government-sponsored enterprises Fannie Mae and Freddie Mac. Some advocate change, some advocate elimination, but there is veritably no support for maintaining the status quo. Before serious progress can be made on the matter, the White House has to reveal its highly anticipated plan, which had been scheduled for circulation in January of this year. “We expect the Administration’s proposal regarding GSEs to be out within a month,” said Berman, adding that, “our proposal has been well received.”

MBA’s proposal, conceived in 2009, centers on what the organization describes as a new type of mortgage-backed security, a two-part MBS for both multifamily and residential assets. “First, a security-level, federal government guaranteed ‘wrap’ similar to that on a Ginnie Mae security,” as the organization documents in its legislative and regulatory priorities outline. “The government backstop would be explicit and focused on the credit risk of these mortgage securities. Second, the security would be backed by loan-level guarantees provided by privately owned, government-chartered and well-regulated mortgage credit guarantor entities. The infrastructures of Fannie Mae and Freddie Mac, including their technology, human capital, standard documents and existing relationships, should be used as a foundation for one or more MCGEs. A strong federal regulator would oversee the MCGEs and would charter new MCGEs to provide competition in the market. MCGEs would stick to securitizing standard loan products for single family and multi-family housing, and there would remain plenty of room in the market for the return of private label securities and continuation of government programs such as the Federal Housing Administration, the Department of Veterans Affairs and USDA rural housing lending.”

All parties involved wait with bated breath for the administration’s proposal, presently due at some point in February. However, promised delivery dates are, well, soft. It is the government, after all. “We’re anxiously awaiting having the train pull out of the station,” Berman said, “but the first marker people will look for will be the administration’s proposal.”

In terms of advocacy, MBA has a great deal on its plate. But so much of the association’s goals are contingent upon the action of others. “While regulators write the rulebook for the mortgage finance system of the future, Congress will begin considering the future role of government in the secondary mortgage market,” as per MBA. “Put all that in front of a backdrop of continuing macroeconomic challenges and efforts to re-examine the tax code, and 2011 will remain a time of intense uncertainty and rapid change for the mortgage business.”