Freddie Mac may not be generating the response it hoped for when it announced its new multifamily, early rate-lock program, at least that seems to be the trend as four companies specializing in multifamily lending said they aren't planning on using the program.
Freddie unveiled its early rate-lock program during the Mortgage Bankers Associations annual convention in Boston and hoped to draw multifamily lenders by allowing them to secure interest rates up to 45 days prior to completion of a final underwriting package. The program was made available to all Freddie Program Plus seller/servicers and applied to all loans of $2.5 million or more and costs borrowers a rate-lock fee of 25 basis points, payable out of the required 2% good faith deposit.
The timing for the program seemed right. Interest rates have steadily ticked up, and with the Feds recent 75 basis point increase of the Fed Funds rate, more lenders may yet test the program.
But while the higher rates may eventually earn it more customers, Freddie's biggest dilemma may be in coaxing the bigger multifamily lenders out of their traditional relationships with commercial banks, thrifts and other conduits.
Commercial banks far outpaced both Fannie Mae and Freddie combined in net acquisitions of multifamily loans. According to a recent HUD survey of mortgage lending, commercial banks tallied $7.3 billion in multifamily acquisitions in the second quarter of 1994, while thrifts and federal credit agencies both acquired roughly $1.1 billion over that span as well.
By contrast, Fannie committed $5.5 billion for the purchase of multifamily loans in all of 1994, while Freddie, which is gingerly stepping back into the multifamily market, has committed $700 million for the year.
The market just hasn't responded enthusiastically said David Queen, senior vice president of AMI Capital Inc., a multifamily lending firm based in Bethesda, Md.
AMI's parent, Union Labor Life Insurance Co., offers a mortgage securitization program with an early rate-lock feature, Queen said, but interest has also been tepid. In theory, you'd think [an early rate-lock program] would be a substantial advantage, but maybe its not as important as we think. Borrowers seem more confident in established programs.
In addition to securitizing multi-families through its parent, Queen said AMI was also close to completing a deal with CS First Bostons mortgage securitization unit and it also occasionally sold loans to Fannie. Is Freddies rate-lock program--which Fannie has mulled, but does not yet offer--attractive enough to draw AMI's business? Not yet.
Specifically, we wouldn't view the early rate-lock option by itself to be sufficient impetus to change horses, Queen said. Others felt that way also. One representative of a large multifamily lending federal savings bank in Texas said some lenders simply aren't interested in dealing with Freddie.
Freddie has closed the door on correspondent lenders, he said, alleging that some lenders have applied to become Freddie Program Plus seller/servicers only to be told their regions are already well represented by other lenders. Now, he added, it appears Freddie hasn't been able to get the volume from those larger lenders and is opening up to more lenders.
But the traditional conduits for multifamily loans seem to have a grip on the industry. Metropolitan Funding Corp., a New York-based lender specializing in this sector, sells its multifamily mortgages to HUD and also acts as a correspondent for several large banks. Hadley Brassman, Metropolitan's president, said programs like Freddies early rate-lock were attractive and might even warrant a second look someday--the company currently uses similar programs offered by some banks--but added that its niche was in HUD multifamilies and didn't anticipate straying from that plan.
Other lenders had similar feelings, but not the same destinations.
Allied Mortgage & Realty Corp., a multifamily lending firm in Berwyn, Pa., has dozens of correspondent relationships with life insurance companies and, despite the steady rise in interest rates, is having a record year--without the benefit of early rate-lock programs.
Allied's president, John Street, said life insurance companies have shied away from multifamily purchases the last several years, but have recently returned to the market. That renewed interest and the lack of capital industry-wide has [lenders] looking for alternatives, which could be one reason why Fannie and Freddies multifamily purchases aren't where they want them to be.
And with a niche as a correspondent to life insurers, Allied-- with a few exceptions, such as acting as a correspondent for a Fannie delegated--plans to stay put.Net Acquisitions Of Multifamily Loans 2nd Quarter 19941. Commercial Banks $7.3 billion2. Savings & Loans $1.1 billion3. Federal Credit Agencies $1.1 billion4. Private MBS Conduits $1.1 billion5. Mortgage Pools $.91 billionTotal Acquisitions: $12.7 billionSource: HUD
