Federal Housing Administration Commissioner Carol Galante told HousingWire in an exclusive interview that the FHA’s multifamily refinancing volume is most likely at its peak, with low interest rates encouraging refis on existing loans insured by agency.
With this pace of activity, Galante expects the agency may have to ask for another $5 billion in commitment authority by the end of the year to deal with the current volume.
"As those rates go back down, I think we will see it shift again," Galante added.
But the higher demand is not a problem, at this point, the commissioner explained.
"We saw a huge spike in 2009 and 2010 when there was no private capital available in the marketplace and that was around new construction, multifamily loans. The only reason the volume remains high today is because interest rates are low."
Higher levels of loan refinancings are actually good for the agency, Galante pointed out.
"It helps the FHA in the long run because it is protecting those assets by letting the borrowers take advantage of those low interest rates."
But even as the agency deals with an influx of business volume, it's coming at a time when the multifamily segment is in consolidation mode and change is expected to be a constant at the FHA for the next two years.
The Federal Housing Finance Agency released a report Friday on how Fannie Mae and Freddie Mac would fare if their multifamily businesses operated without a government guarantee.
"Without a government guarantee a fully private company may not provide the same level and scope of services in the marketplace, at least at current prices," FHFA said.
"For example, Fannie Mae and Freddie Mac conclude that lending on affordable multifamily housing properties, in particular those that satisfy the housing goals, or providing loans to small multifamily properties, may not be practical due to the high cost, relatively low profitability and difficulties with securitization," the FHFA said in its report.
"In addition, without a government guarantee, there may be additional volatility in funding availability under certain economic conditions, similar to other commercial real estate markets."
Galante and multifamily leaders at the FHA are already setting the stage for a massive restructuring of HUD’s Office of Multifamily Programs.
HUD announced in April that it would consolidate the multifamily group’s 50 field offices into 10 locations that will eventually report to five multifamily hubs.
But that’s not the extent of it.
Marie Head, deputy assistant secretary of multifamily housing programs at FHA, said the multifamily segment is adopting a risk-based underwriting model in production, which means borrowers are going to see an expedited streamlined process when applying for FHA-insurance on multifamily loans.
In addition, the multifamily segment will have a single-point of contact for underwriting to improve the process and plans to create specialized account positions to serve certain types of multifamily loans.
Head says this is "different from when a borrower may have had loans across the country and in different offices." In the future, the focus will be on ensuring similarly structured multifamily loans – small to large – are handled by the same core groups.
"Because there is such a workload imbalance across our multifamily business, we are taking a hard look and doing a workflow analysis and eliminating those imbalances," Head told HousingWire.
For now, the FHA multifamily segment is projecting it will need more commitment authority from Congress by the end of the year since the pipeline of activity for multifamily and healthcare loans continues at a rapid pace.
Earlier this year, the FHA was denied a request for another $5 billion in multifamily commitment authority.
While Galante says the agency has a fresh amount of $12.5 billion in authority for the second half of the year, "there is still a concern that based on the pace of pipeline activity, we will start to run out of commitment authority before the end of the year," the commissioner said.
With that in mind, Galante added, "There is an interest on our part in having Congress provide an additional $5 billion in authority."