With Fannie Mae’s recent 10-basis-point increase in fees it charges lenders to guarantee loans and the continued decline in CMBS conduit rates, the rate gap between the two multifamily products is diminishing, particularly for smaller balance (under $10 million) loans on “B” quality multifamily properties. In addition, CMBS loans with cash-out are now readily available at 75% LTV, competitive with Fannie Mae’s 75% LTV cash-out product.
“Prior to the 2007-2008 crash of the CMBS market, CMBS loans went head to head with Fannie Mae in terms of rate and proceeds,” commented Michael D. Sneden, Executive Vice President at ValueXpress. “But with more underwriting flexibility (i.e., no requirement that the property be 90% occupied for 90 days prior to loan funding), CMBS took its fair share or more of the multifamily market.”
“The collapse of the CMBS market allowed Fannie Mae (and Freddie Mac) to take control of the market, and it has been a challenge to win those clients back,” commented Gary Unkel, Senior Loan Originator at ValueXpress. “But now with rates and proceeds on similar footing, those clients are coming back to CMBS due to more flexible underwriting and faster processing speeds.”
“We recently had a deal under application with Fannie Mae,” said Jim Brett, Senior Loan Underwriter at ValueXpress. “The transaction is a portfolio of six apartment buildings, so the deal is complex. Since the properties are located in a flood area, Fannie required additional reserves beyond the FEMA limits and Fannie also reduced the LTV from 70% to 60%. We switched the loan to CMBS and expect to close at 70% LTV within 30 days at a rate that is only slightly higher than Fannie’s offer,” said Brett.