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GSE multifamily loan acquisitions appear headed for record-setting year

November 23, 2016 | By

The first six months of the year indicate that multifamily housing lending is on its way to setting another record in 2016, even as Fannie Mae and Freddie Mac, government-sponsored entities (GSEs), see a decline in their share of the market, according to Fannie Mae’s Multifamily Market Commentary for October.

“2016 is shaping up to be another big year for multifamily lending,” says Kim Betancourt, director of economics for Fannie Mae’s Multifamily Economics and Market Research Group (MRG).

“Low interest rates, the healthy growth in renter households, and solid demographic trends are all paving the way for ongoing strength in the multifamily sector this year,” she says.

While the sales volume of other types of commercial real estate properties declined in the first half of 2016 year-over-year, sales of apartment properties valued at $2.5 million or more were up, says Betancourt, citing figures from Real Capital Analytics.

Apartment sales totaled $34.9 billion in this year’s second quarter – down from $39.7 billion in the first quarter, according to Real Capital Analytics. That brought the total to nearly $75 billion for the first half of 2016 – more than a 37 percent increase over the first half of 2015.

And while activity dipped in the second quarter, it was still up a “respectable” 5.0 percent year-over-year, she notes.

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Banks Increase Lending Share

“There has been quite a bit of multifamily lending going on this year and it’s not coming from the usual suspects – meaning Fannie Mae and Freddie Mac,” Betancourt adds.

“In fact, other lenders – notably U.S. banks, financial services companies, international banks, and life insurance companies – have all seen an increase in their multifamily lending activity for the first six months of 2016,” she says.

Fannie Mae and Freddie Mac combined accounted for the largest share of multifamily loan acquisitions during the first half of the year. But data from Real Capital Analytics show their share decreasing to 44 percent – down from 52 percent in each of the three preceding years.

During the same period, banks “made a big leap,” the Fannie Mae Commentary observes.

Banks – including non-U.S. institutions – saw their market share of multifamily lending climb to 38 percent, up from 27 percent for all of 2015.

Defying Speculation

U.S. banks saw their share climb to 34 percent in the first half of 2016 from 24 percent in 2015.

“This increase in multifamily lending from banks is in direct contrast to industry speculation earlier this year that U.S. banks would actually pull back in response to concerns of their regulator – the Comptroller of the Currency – over the amount of multifamily lending they had been doing over the past few years,” says Betancourt.

But looking at the data, “that doesn’t seem to be the case at all,” she says.

“In fact, as a result of all this lending, U.S. banks saw a net increase in their multifamily mortgage holdings of more than $21 billion in just the first half of 2016 alone. As a comparison, a year ago, the increase was just about $18 billion.”

Also, the banks do not appear to have slowed their construction lending activity.

The Fannie Mae commentary says that current activity suggests the depositories may be veering back to more normal trends – after experiencing a contraction in their net multifamily holdings between 2008 and 2010.

As of the second quarter of 2016, institutions insured by the Federal Deposit Insurance Corporation held $365 billion in multifamily real estate loans. That was up from $315 billion a year earlier.

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Filling a Void

The commentary also notes that banks – especially regional and local banks – appear to have stepped in to fill the void left by commercial mortgage-backed securities (CMBS) conduits.

The CMBS conduits have struggled to maintain market share since 2014, when they reached a post-recession peak of 10 percent. The share plummeted to just 2.0 percent in the first six months of 2016.

And their multifamily loan portfolio shows a “somewhat conservative” loan-to-value (LTV) ratio of just 55 percent. That was the lowest LTV of all the lenders.

Lending data from the American Council of Life Insurers suggest that life insurers are also in position to repeat or surpass last year’s near-record $15.3 billion in multifamily commitments. Life insurers made a record $16.5 billion in commitments in 2013.

At the same time, life insurers appear to be choosing the metros in which they make those commitments “a bit more carefully,” the commentary says.

Ginnie Mae’s multifamily activity has also been slowing down. The federal government corporation guaranteed just $12 billion in multifamily securities in the first nine months of 2016. That was down from $18.5 billion last year and a peak of $24.1 billion in 2013.

Ginnie Mae is currently on track to potentially guarantee about $16 billion in securities this year. That level would be the lowest since 2011.

But overall, “as long as mortgage investors remain comfortable with future multifamily trends, the sector appears to be on track for another strong year,” Betancourt says.


Opinions, analyses, estimates, forecasts, and other views of Fannie Mae’s Multifamily Economics and Market Research Group (MRG) included in these materials should not be construed as indicating Fannie Mae’s business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the MRG bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the MRG represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.










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