We are looking forward to our upcoming Mid-Market Summit event on Thursday, May 7 and wanted to take the time to speak with sponsor Dean Huber of Walker & Dunlop ahead of the event about financing deals.
Kiser: How did you get your start? Was it in lending or brokerage?
Huber: My start was in lending. I was working with GE Capital in Chicago out of college and eventually took a finance role with GE Real Estate at Stamford CT. From there, I worked with JP Morgan (Mezz Lending) & ING (Balance Sheet Lending) in New York City and returned to Milwaukee in 2009 to take a role with BMO Harris. I’ve been in mortgage banking since 2012. While advocating for a Borrower, it’s helpful to have a lender’s perspective.
Kiser: In our office, we frequently talk about underwriting for the unknown. What are your tips for underwriting for a moving target (i.e., Cook County taxes for Evanston buildings)?
Huber: Be thorough, obtain good data, ask questions of & develop a consensus with market leaders. Prepare scenario analyses to ensure any surprises are minimal.
Kiser: What will happen to rates between now and November, then what happens after the election?
Huber: Predicting rates is not my specialty, but I track the markets, I follow certain economists. As of late February 2020, Equities continue to tumble around the world and uncertainty persists over the spread of the coronavirus and the increasing risk of a global pandemic. This has created a “risk off” market sentiment bidding US Treasuries higher, rates/yields lower. Some might argue this reaction is currently overblown relative to other health risks, but the reaction is evident. Perhaps the next event economists & the markets are anticipating is the Democratic nomination, and then of course the Presidential election in November. Treasuries are at all-time lows. Lots of capital is available in the market, so spreads remain attractive. In fact, Life Companies are often quoting at their floor rates on lower to moderately leveraged deals. If I were looking to lock rate long term, I would not wait for either election to proceed.
Kiser: What’s the landscape for Fannie and Freddie for the rest of this year? What about 2021?
Huber: In September 2018, the new GSE scorecard gave Fannie and Freddie each $100 billion of lending capacity, over five quarters (through Q4 2020).
37.5% of the GSEs’ lending volumes must be on mission-driven business, including affordable, small loans, and seniors housing. The new scorecard eliminates the concept of “caps” by giving each GSE a set volume limit, providing more clarity on the GSEs volumes over the next five quarters. Given the MBA 2020 multifamily market size estimate of $390 billion, if the GSEs each lend $80 billion in 2020, they will have 41% market share.
Fannie closed 2019 with record volume ($70BN). W&D was the #1 Fannie Lender in 2019. Freddie closed 2019 with record volume as well ($78BN). W&D was #3 with Freddie.
For 2021, the Scorecard will likely not come out until September of this year. We will not know until the new guidance comes out from the FHFA regarding the plan for next year, but we have heard some early indications that seem to be favorable in general. What seems to be clear is that the regulator understands what a key role both Fannie and Freddie play in the market. They do not want to do anything that would negatively impact the market. Mark Calabria, who heads up the FHFA, was appointed for a five year term, and he has said he intends to serve his full term. While we are only speculating at this point, we anticipate that next year will be fairly similar to this year, which is a good thing.
One of the unknowns in this equation is that we are in a presidential election year. If Trump remains in power, we anticipate that the steps to privatize Fannie and Freddie will continue. Steps have already occurred to recapitalize both entities, so that they can exit conservatorship on solid financial footing. In general, from what we have heard, we are confident that Fannie and Freddie will continue to play a vital role in the market going forward.
Kiser: What are important questions Borrowers / Clients should ask that they usually don’t?
- Do you have experience with this type of loan?
- How many capital sources do you represent, and with the requisite effort, how can those established relationships yield favorable outcomes for me?
- What are the pros & cons between a life company execution & an agency execution?
- What can I expect my post-close experience to be and will you help me throughout?
- Will you take a look at my PFS / REO and make some recommendations, whether it be staggering loan maturities, planning for succession, matching lease maturities & fundamental refinance risk, etc?
Kiser: What are a few ingredients for a successful Mortgage Banker / Client relationship?
Huber: Clearly communicate on everything. Your Mortgage Banker should have relationships with all of the top vendors in the city. Ensure they have access to all of the data and all of the lenders. The Mortgage Banking industry has historically established relationships with life companies and other capital sources by office, not firm-wide. Make sure your Banker’s office has a large number of capital sources to ensure lender competition yields excellent terms. My W&D office closed 182 loans with 64 lenders in 2019. We have access to virtually every life company actively making mortgages. Combine our top agency executions with life company & other types of capital, and no stone is left unturned.
Kiser: What questions should I ask my Mortgage Broker?
- Which lenders do you represent?
- What steps do you control & which are we relying on others for?
- What is your loan volume in the last 5-6 years?
- What is the timing and what does the process entail from initial sizing to closing to post-close servicing?
- Do you stay involved or hand me off to someone else as due diligence commences?
- When is your fee earned?
- Are you detailed, high effort, almost always available, trustworthy, competitive, regularly communicative, passionate?
- What would your lenders / capital sources say about you professionally?
- If you don’t get the right answers from your prospective Mortgage Banker, consider alternatives.