Fannie Mae and Freddie Mac have been a constant source of permanent financing for apartment owners, even during these difficult times when certain sectors of the capital markets have been dormant for over a year. And while these government-sponsored enterprises are still lending, they are starting to cut back in certain areas. Here are a few changes:
— Going forward, investors who refinance apartment projects through Fannie or Freddie will find tighter underwriting if the permanent loan is greater than the outstanding bank balance and cash is being pulled out.
— Second mortgages or supplemental loans will be limited to 65% or 70% of appraised value, depending on the particular situation.
— Underwriting will be tightened if operating results from the most recent three-month period (the “trailing three”) are worse than the trailing six or trailing 12-month periods.
There are obviously lots of details on these changes, but suffice to say at this point that investors need to be aware that underwriting is getting tighter. Discuss these changes with your lenders early to make sure that expectations are in line with these new realities.
(Brian Andrews is a certified mortgage banker specializing in the financing of commercial real estate. His business is Andrews Commercial Mortgage and he can be reached at brian.andrews@acmla.com.)
