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In this Issue
 FICO Scores and Commercial Transactions
2007 CMBS Players Still in Action
Commercial/Multifamily Originations Rise in 2Q
Multifamily Mortgage Debt Slowed in 1Q
FICO Scores and Commercial Transactions
By Brian Cronin
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| Brian Cronin |
Historically, the FICO score has been used by single-family home lenders, credit card companies and automobile lenders. Fannie Mae recently changed its loan underwriting parameters for loans of $3 million or less with an emphasis on the FICO score. If the key principal’s (or principals’) FICO score is greater than or equal to 680, then escrows for tax and insurance may be waived at the lender’s discretion. In addition to a 1.30x DSCR and a 65 percent LTV, Fannie Mae is also using the 680 FICO score as one of the triggers for recourse lending.
There are three major credit reporting agencies that report FICO scores: Equifax, Experian and TransUnion. The score reported by these agencies can vary widely for a number of different reasons. One pertains to what has been reported into the agencies –– not all credit suppliers report into all three agencies. Another reason is the time frame agencies use to calculate your score, as they are likely using different time periods. In addition, the FICO formula for each of the three agencies is different.
MyFico.com sells the FICO scores to the three major agencies, but further mudding the waters are the Credit Score, PlusScore, ScoreX and Vantage, that are not FICO scores and generally not accepted by banks and mortgage lenders.
The FICO score is generally calculated with a 35 percent weight given to payment history, 30 percent to use of credit available, 15 percent to established history of the account, 10 percent to inquiries to your credit report and 10 percent based on the mix of credit (revolving, installment, auto, mortgage, etc.)
Since payment history is given a 35 percent weight to your FICO score, it is critical to pay your bills on time.
Brian Cronin is a Director in Arbor’s Wayne, NJ office. He can be reached at bcronin@arbor.com.
2007 CMBS Players Still in Action
Industry analysts claim that today’s players in the commercial mortgage-backed securities market are unlikely to forfeit in the same way they did in 1998 when the market suffered similar liquidity problems and market action came to a standstill.
The difference between today and nine years ago, analysts say, is that current deals in the pipeline are more likely to go to closing, though the terms of the loans will probably be altered.
“In 1998, the market simply shut down,” said Edward Padilla, CMB, CEO of NorthMarq Capital in Minneapolis. “Here, we have a re-pricing and a re-underwriting. That is a fundamental difference. It is not an absolute shutdown… There are billions and billions of dollars of commercial real estate transactions in process and that means they are committed under some stage of that. [They] are not likely to close as quoted–as committed. That's a painful process.”
Some lenders have stopped quoting prices due to uncertainty in the conduit market, while many borrowers have decided to wait on the sidelines until the market resets to be active players again.
Wall Street analysts say to expect market conditions to remain the same for the remainder of 2007 and possibly into the first quarter of 2008.
Commercial/Multifamily Originations Rise in 2Q
Commercial and multifamily mortgage bankers’ loan originations were 40 percent higher in the second quarter of 2007 than in the second quarter of 2006, according to the Mortgage Bankers Association’s Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations. The positive results are in line with a trend of second-quarter-over-second-quarter increases that began with the start of the MBA’s survey in 2001.
The highest numbers of originations within the commercial/multifamily mortgage sectors were seen in commercial mortgage-backed securities conduit loans and loans for hotel properties. The strong volume of originations is attributed to the large number of real estate investment trusts that went private during the second quarter.
Hotel properties spurred the largest increase in originations over the second quarter of 2006. Excluding the hotel deals, originations overall would have increased approximately 27 percent and conduit originations by 42 percent compared to the second quarter of 2006.
Between the second quarter of 2006 and the second quarter of 2007, the overall increase in loan originations included a 330 percent increase in loans for hotel properties, a 34 percent increase in loans for retail properties, a 19 percent increase for office properties, and an 18 percent increase for multifamily properties.
The two property types that experienced a decline in loan originations from the second quarter of 2006 were health care (14 percent) and industrial (7 percent).
Among investor types, conduit loans for CMBS increased by 77 percent compared to last year, while Government Sponsored Enterprises (Fannie Mae, Freddie Mac) increased by 14 percent. Commercial bank portfolios saw an 11 percent decrease and life insurance companies decreased by 15 percent.
Mortgage bankers’ originations were 26 percent higher overall in the second quarter of 2007 than in the first. All property types increased in origination volume from the first quarter, with the exception of office and health care.
For more information, go to www.mbaa.org.
Multifamily Mortgage Debt Slowed in 1Q
Growth in multifamily mortgage credit slowed in the first quarter to $12 billion (from $16 billion the previous quarter and $14 billion a year earlier). Over the last four quarters, multifamily mortgage credit increased by $48 billion–the smallest such figure in four years, but still higher than any figure prior to 2003.
There was also a noticeable shift in credit providers in the first quarter. For the first time in almost 10 years, depository institutions actually decreased their exposure to multifamily debt by almost $1 billion. By contrast, CMBS increased by more than $8 billion, the biggest quarterly increase on record and more than two-thirds of the total increase in credit. Fannie Mae and Freddie Mac increased their volume of mortgage credit by almost $4 billion. Banks and thrifts still hold more than one-third of multifamily mortgage debt outstanding, while Fannie and Freddie hold a combined 25 percent. The CMBS share has risen to a record 15 percent.
Source: The National Multi Housing Council www.nmhc.org.
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Arbor is a national, full-service real estate investment firm focused on executing the highest level of expertise in order to provide clients with the most expansive, creative, and flexible range of lending products in the real estate finance industry. At Arbor, employees approach business in a results-oriented, decisive manner, striving to serve its customers quickly and efficiently while offering a boutique of unique product lines that distinguishes the company from traditional lending firms.
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