TheMReport — News and strategies for the evolving mortgage marketplace.
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46 | Th e M Rep o RT O r i g i nat i O n S e r v i c i n g a na ly t i c S S e c O n da r y m a r k e t SERVICING the latest refinance challenges expected for cre Segments As refi dwindles, commercial segment may face obstacles. a s the 10-year anniver- sary of the previ- ous market peak in commercial real estate (CRE) approaches, lenders and investors are looking ahead to a wave of refinancing that could spell trouble for the market. An estimated $1.4 trillion in commercial mortgages will mature between 2014 and 2017. Thirty percent of these maturing loans are in the Northeast, 20 per- cent in the Pacific and Southeast regions, and less than 15 percent in the Midwest, Southwest, and Mountain states regions. In the years leading up to the economic downturn, lend- ers became more aggressive and eased requirements in order to increase volume and satisfy investor demand for securitized CRE products. Loans originated in 2004 and 2005 generally had a lower loan-to-value (LTV) ratio than those originated in 2006 and 2007. A higher LTV ratio indicates more debt as a percentage of equity and therefore more risk. Since the majority of these loans have 10-year terms, the 2004–2007 loans will come due in the next three years. Trepp data show that most CRE loans underwritten in 2013 have an LTV ratio of about 60 percent, while multifamily loans have an LTV around 70 percent. Loans with too high of an LTV ratio may not meet upcoming tighter standards without inject- ing additional equity. Multifamily is among the healthiest property segments, so borrowers will face the least dif- ficulty refinancing. Multifamily loans tend to have a higher LTV ratio than other commercial properties, but the segment is performing well, and demand for rental housing is strong. Multifamily loans in Northeast states could face problems in rule revision Federal agencies retool appraisal rules on high-cost loans. t he Consumer Financial Protection Bureau's (CFPB) new appraisal rules for the mortgage industry that took effect last month will include exemptions for some higher-priced mortgage loans, according to a press release from six federal financial agencies. The rules—part of the reforms outlined in the Dodd-Frank Act— require lenders to provide borrow- ers with a copy of an appraisal prior to closing on a home loan. Lenders must use a licensed, certified appraiser who makes a physical visit to the property for all higher-priced loans. As per Dodd- Frank, higher-priced loans "have interest rates above a certain thresh- old," according to the agencies. The rule and its revisions were jointly filed by the CFPB, the Federal Deposit Insurance Corporation, the Federal Housing Finance Agency, the National Credit Union Administration, and the Office of the Comptroller of the Currency. "The agencies believe that several additional exemptions from the new appraisal rules are appropriate," the agencies stated in their new rule revisions. The revisions include exemptions for loans less than $25,000 and for streamlined refinance loans. The revisions also address manufactured housing with dis- tinctions for mortgage loans that cover a manufactured house and land as opposed to a loan secured by only a manufactured house. A mortgage loan secured by a manufactured home and land does not have to meet the require- ment that an appraiser be physi- cally present inside the home. Mortgages for manufactured houses without accompanying property carry further exemp- tions, allowing for appraisal alternatives such as third-party valuation services. Furthermore, the agencies are allowing for an 18-month exten- sion of the new rules for manu- factured housing such that loans for manufactured housing do not have to meet new appraisal requirements until July 18, 2015. "The exemptions are intended to save borrowers time and money while ensuring that the loans are financially sound," the agencies stated. An estimated $1.4 trillion in commercial mortgages will mature between 2014 and 2017.