Walker & Dunlop Expects Loan Originations To Bounce Back Following Third Quarter Slowdown
Forget the federal government shutdown, it’s federal spending limits and rising interest rates that appear to be having a more immediate impact on the multifamily real estate lending markets.
Walker & Dunlop Inc., one of the leading commercial real estate
finance companies in the U.S., with a primary focus on multifamily lending, announced that it expects third quarter 2013 loan originations to be in the range of $1.7 billion to $1.9 billion, below its third quarter guidance of $2 billion to $2.5 billion.
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The company attributed the lower expectations to rising interest rates and a slowdown in lending activity by Fannie Mae and Freddie Mac to stay under their FHFA-imposed 2013 lending caps.
"Many borrowers chose shorter-term, variable-rate financing during the quarter as the yield curve continued to steepen," said Willy Walker, chairman and CEO of Walker & Dunlop. "Fannie Mae and Freddie Mac were both ahead of their annual production caps at the end of [the second quarter], and as a result, pulled back their lending activity significantly.”
Fannie Mae’s book of business decreased at a compound annualized rate of 0.8% in August, Fannie Mae said this week. Gross mortgage purchases for the month were $20.62 billion compared to $27.52 billion for August 2012.
Freddie Mac said its total mortgage portfolio decreased at an annualized rate of 5% in August. It purchased $35.96 billion in mortgages in August compared to $40.25 billion a year ago.
Fortunately, Walker said, the dip in loan originations is expectd to be temporary.
"Rates have come down somewhat in September, and Fannie and Freddie appear very focused on lending their full allocations of $30 billion and $26 billion, respectively, before the end of the year,” Walker said. “Year-to-date Walker & Dunlop will have originated $6 billion to $6.2 billion of financing, compared to $4.2 billion for the same period in 2012, an increase of 43% to 48%."
In February 2013, the GSE regulator, the Federal Housing Finance Agency (FHFA), imposed volume caps on Fannie Mae’s and Freddie Mac’s 2013 multifamily purchase volumes to encourage more private capital to return to the market. Caps are 10% less than 2012 volume. Fannie Mae’s cap is approximately $30 billion, and Freddie Mac’s cap is approximately $26 billion.
According to the Mortgage Bankers Association and the FHFA this week, the shutdown of the federal government should not significantly further impact FHFA as long as the shutdown is brief. FHFA officials will still be available to process new loans but the approval process may take longer.
Meanwhile, Wall Street this week gave the Bethesda, MD-based firm a stable ratings outlook.
Walker & Dunlop also announced this week that it plans to enter into an institutional senior secured term loan with an aggregate principal amount between $150 million and $200 million to fund repayment of its existing senior credit facility and for general corporate purposes, including strategic growth opportunities.
Moody's Investors Service assigned a Ba3 rating to the new senior secured term loan with a stable outlook. As well, the rating agency assigned a Ba3 corporate family rating to the firm.
The firm's business model faces some uncertainty surrounding the future of the U.S. Government's role in multifamily finance, Moody’s noted and added that as with most finance businesses, the enterprise is sensitive to the numerous types of capital market risks, including the potential for interest rate volatility.
However, Moody’s said its stable rating outlook reflects Moody's expectation that Walker & Dunlop will grow prudently and expand its commercial real estate platform without increasing its financial risk profile.
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