Multifamily awaits abstention | GlobeSt

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WASHINGTON, DC — Last month Treasury Secretary Steven Mnuchin formed a working group regulators to find ways to alleviate the expected liquidity shortage of mortgage companies. He asked the task force to make recommendations by March 30. Little has been said about the task force since then, other than a press release it called. and that “Ginnie Mae and the Federal Housing Finance Agency will continue to closely monitor the markets and the condition of the non-bank entities serving Ginnie Mae, Fannie Mae and Freddie Mac MBS.”

Tired of waiting, last weekend 15 real estate trade associations and affordable housing advocacy groups called on the Federal Housing Finance Agency, Federal Reserve and Treasury Department to establish a liquidity facility for service providers who support the moratorium on foreclosures established by the CARES Act.

A liquidity facility for single-family and multi-family service providers is needed “to ensure the industry as a whole can deliver much-needed economic relief to consumers through this unprecedented forbearance plan.” While some repairers will not need assistance, many others will need temporary support to provide forbearance at the scale and for the duration required, ”the trade associations said in their letter to regulators.

Trade associations have noted that Ginnie Mae’s recently announced plan to establish a liquidity facility for forbearance single-family and multi-family mortgages, although appreciated … “will not address service advances associated with loans backing Fannie Mae , Freddie Mac or private label securities, nor will it deal with tax and insurance advances on loans backed by Ginnie Mae’s securities. “

The situation is becoming increasingly urgent for the multi-family sector as many local and state governments have put in place temporary moratoria on evictions. Even when these pass, the industry will still struggle as unemployment continues to rise. Bank of America predicts that between 16 million and 20 million jobs could be lost over the next two months, raising the unemployment rate to more than 15%.

The good news is that Fannie Mae and Freddie Mac have announced forbearance measures, but they differ, according to Willy Walker, CEO of Walker & Dunlop.

Freddie Mac grants borrowers three months forbearance and the borrower must show difficulty in the property, although he has not released a specific figure for debt service. Under forbearance, landlords cannot evict a tenant during this period.

Fannie Mae is asking service officers to document a borrower’s struggles due to the COVID-19 emergency. Its program requires the borrower to suspend tenant evictions for non-payment of rent during the borrower’s forbearance period, plus any longer period required by CARES law or any state or local law.

On the flip side, multi-family homeowners will find that private label CMBS – including conduits and CRE CLOs – services, special services and controlling parties generally do not offer general relief to borrowers, according to one. research note by KBRA.

Instead, requests for relief will be assessed on a case-by-case basis by the parties involved, he said.

In CMBS securitizations, certain types of requests may be approved without a special service transfer, although special service approval may still be required, according to KBRA.

“For example, a borrower’s request for the use of capital reserves to help cover general expenses may be granted by a senior manager and a special manager, but remain a performing loan and continue to be managed by the manager. main. However, any forbearance or loan modification approval that would affect debt service payments would generally require that the loan be transferred to the special manager. If the loan were to be transferred and amended, including a forbearance, there would usually be a turnaround fee which, if not collected from the borrower, could potentially come from the trust. These costs (if paid by the trust) would generally result in a shortfall for the more junior certificate holders. “

KBRA said they heard that some repairers might consider waiving or reducing the charge in certain circumstances.

In CRE CLOs, the process for a borrower requesting relief is generally the same as in a CMBS conduit. However, special services have greater discretion to modify performing loans, according to KBRA. “In addition, some CRE CLOs have relatively high multi-family exposures, and difficulties in this industry can have a significant impact on transactions. A high level of defaults could result in a violation of ticket protection tests, which typically results in payments being redirected from junior classes, and in some cases mezzanine, to senior classes.

In addition, if a large number of loans were to be temporarily forborne, the transaction could trigger the interest coverage test (one of two banknote protection tests), KBRA continued, and quantities Significant changes could have a negative impact on the other trigger, the face value test, if the value of the collateral has decreased significantly from inception.

“If changed, a new appraisal may be required and used to deduct the loan for the face value test calculation. If enough loans are written down, the face value test could fail. “

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