CMBS conduit loans secured by multifamily properties compete directly with similar loans offered by Fannie Mae through 24 Delegated Underwriting and Servicing (DUS) lenders. Typically, DUS lenders are authorized to approve and close loans without Fannie Mae approval. Both loan products allow cash-out, are non-recourse, have long (10-year) fixed-rate loan terms and similar maximum LTVs (75% for cash-out, 80% for purchases).
But Fannie Mae has some competitive advantages. Fannie Mae rates are typically 0.25%-0.50% lower than CMBS conduit loan rates and transaction costs are lower. Therefore, in many markets, a Fannie Mae multifamily loan on a well-performing apartment complex with a financially strong and experienced sponsor is a better option than a CMBS conduit loan. However, Fannie Mae has determined certain markets as “a market with weak economic conditions deemed to present increased credit risk.” Those are known as “Pre-Review” markets, where LTV is typically limited to 65% LTV and all loans must be approved by Fannie Mae. CMBS conduit loans do not have “Pre-Review” markets, and therefore, all markets are eligible for 75%-80% financing, thereby presenting an opportunity to originate CMBS conduit loans in those markets.
Current Fannie Mae “Pre-Review” Markets | |
---|---|
Indiana | Jacksonville MSA |
Michigan | Las Vegas MSA |
North Dakota | Lafayette, LA MSA |
Ohio (except for Columbus MSA) | Midland, TX MSA |
Abilene, TX | New Orleans MSA |
Albuquerque, NM | Phoenix MSA |
Atlanta MSA | Tyler, Victoria and Odessa MSA |
Auburn, AL | Tucson MSA |
Bakersfield, CA | Shreveport MSA |
Houston MSA | Fairfield, CA MSA |
“Typically we will originate a Fannie Mae loan in non-Pre-Review markets for deals with no credit or performance issues, and CMBS conduit loans in Pre-Review markets,” commented Michael D. Sneden, Executive Vice President at ValueXpress.