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COMBOG's new leadership: Clifford Hardy, president and CEO of First Housing, Tampa, Florida, is the new leader for the commercial and multifamily members of the Mortgage Bankers Association (MBA). He brings extensive multifamily experience to the job of chair of the Commercial Real Estate/Multifamily Finance Board of Governors (COMBOG).

THE BROAD INDUSTRY EXPERIENCE OF THE NEW commercial/multifamily leadership for the Mortgage Bankers Association (MBA) mirrors the theories of comparative advantage and division of labor found in classical economics. Adam Smith had his butcher, baker and candlestick maker to illustrate the cooperative joys of capitalism. Similarly, MBA's 2004 Commercial Real Estate/Multifamily Finance Board of Governors' (COMBOG's) leadership blends the insights of an affordable-housing multifamily maven, a regional mortgage banker and a national conduit lender.

Clifford B. Hardy, CMB, president and chief executive officer of First Housing, Tampa, Florida, serves as the new COMBOG chairman. While Daniel J. Phelan, CMB, president and chief executive officer of Pacific Southwest Realty Services, San Diego, and Kieran P. Quinn, chairman and chief executive officer of Column Financial Inc., Atlanta, share duties as vice-chairman.

COMBOG's leadership this year will concentrate on four industry and business objectives: grooming new leadership, implementing and adopting industry standards/best practices, improving borrower satisfaction and enhancing political influence.

These objectives build on the accomplishments of the outgoing chair, Ann Hambly, managing director of Prudential Asset Resources, Dallas, who oversaw the development of new commercial real estate finance programs (such as MBA industry roundtables and training forums) and the MBA-sponsored CEO Servicing Forums; the issuance of revised guidance by the Securities and Exchange Commission (SEC) in implementing the Sarbanes-Oxley Act; and the initiation of CMF NewsLink, MBA's commercial/multifamily newsletter, among other successful initiatives.

Hardy says the effectiveness of COMBOG for MBA members comes from the continuity of its initiatives and its ability to coordinate efforts with other commercial real estate organizations that share many of the same members as MBA.

"Years ago at MBA, when an incoming chairman began his annual term," Hardy says, "MBA staff had to come up with a brand-new theme that the chairman could make his own. There was no continuity from year to year with the themes. That has all changed. Now we build on the successful initiatives already in place, effectively expanding upon those that have served our members well."

For example, Hardy points to the perpetuating results generated by COMBOG's Education Task Force, which was formed in 2002. After getting input from commercial members on their business and training desires, the task force working with MBA's education staff issued targeted recommendations. In 2003, the recommendations were executed, resulting in a reinvigorated and updated commercial and multifamily curriculum. Based on these initiatives, CampusMBA created the Web-based course "Introduction to Commercial Mortgage-Backed Securities."

"So many dynamic education courses are tailored by MBA to the operational needs of its members," Hardy says. "Companies are encouraging their folks to get involved in COMBOG issues, and I want to build on this. The new commercial CMB [Certified Mortgage Banker designation] will continue to be a priority in 2004. It is the professional designation for our industry, and plays into developing new leadership in the industry--one of COMBOG's top objectives."

In the past year, MBA for the first time has split out commercial CMB training from residential. "It's more focused on commercial industry information now," says Dan Thoms, MBA's vice president of education products and services. "This will result in more commercial CMB candidates every year."

Thoms estimates that at the MBA Commercial Real Estate Finance/Multifamily Housing Convention in February there will be as many as 30 candidates receiving their commercial CMB designation.

Michael Petrie, CMB, chairman-elect of MBA and president of P/R Mortgage & Investment Corporation, Indianapolis, says Hardy's many years of work on MBA committees, as well as his leadership on crucial industry issues, make him ideally suited for COMBOG chairman. "I think the world of Cliff," he says. "He is responsible for where I am today in MBA. He asked me to get involved on an FHA-insured [Federal Housing Administration-insured] project subcommittee 13 years ago, something I would've been reluctant to do without his encouragement."

First Housing's focus

Hardy likes to discuss legislative and regulatory priorities for the industry, and in Florida much of his everyday work as CEO of First Housing brings him into contact with state housing and finance officials, FHA and Federal Home Loan Bank (FHLBank) officials. The company is a for-profit venture set up under Florida legislative authority and has an advisory board of Florida officials, including the state's chief financial officer.

The niche lender is involved in low-income housing tax credit (LIHTC) and housing bond projects, and FHA and Community Reinvestment Act (CRA) lending. First Housing also works with the Florida state housing finance agency in providing services for bond issuers, such as real estate underwriting and special servicing.

The company services a $2 billion portfolio. Meanwhile, First Housing also is a participating administrative entity for the Department of Housing and Urban Development (HUD), handling Section 8 mark-to-market work. And the firm also contracts with the Atlanta FHLBank to service affordable-housing loans.

"We're a niche mortgage banker in some ways," Hardy says. "But in other ways, we do things many mortgage bankers would never consider."

Hardy's two colleagues in the COMBOG leadership, Phelan and Quinn, cover the regional mortgage banker and conduit bases. Phelan sees COMBOG initiatives on education and sales training as being especially beneficial to smaller mortgage banking firms that do not have their own in-house programs. As younger mortgage bankers participate in MBA programs, they tend to get more involved in MBA committee work, a trend COMBOG wants to foster.

"We've seen that graduates of MBA's Future Leaders program over the past few years have become more active in MBA," Phelan says. "Our task is to find the people in companies who have an interest in pursuing leadership opportunities in the association and industry."

"I'm the junior leader on the block as a new COMBOG vicechair, and I'm really looking forward to listening to member concerns and opportunities. I think my major goal is to spread the word on what MBA can do for commercial members. Let us know what your needs are for your business and what MBA should be delivering," Quinn adds. "I view this position as an ombudsman for members. I also want to build a bridge to other organizations working on crucial issues and to Congress and the administration."

The key to successful COMBOG leadership is in serving MBA members, with programs and products that assist them in operating their businesses more profitably and efficiently, Quinn says. "Another goal of mine is to convince commercial members to come to the show--to the MBA events--and let your voice be heard. Let us know what we could've done better, and share with us your insights."

Grooming new leadership

Hardy points out that as COMBOG develops new leadership opportunities in the industry, it must represent the demographic changes in America. MBA will be announcing at the 2004 CREF convention in February that commercial and multifamily members will be participating in MBA's Path to Diversity program. MBA member companies will be offering internships for minorities and MBA will be providing free Web-based training and educational programs for minorities as part of the Path to Diversity program, according to MBA's Thoms. "We'll also make scholarships available to minorities as they move up the ranks in the industry," he says.

Phelan is enthusiastic about expanding MBA's new sales training courses for commercial mortgage bankers. Last year he attended the first such course in Las Vegas and found that the class offered productive ideas for both rookies and the veterans. "The class is good for all levels," he says. "It reminded me about how to continue to be effective in sales, with a regular regimen."

"We've added a two-day multifamily underwriting course using case studies and the sales training courses," Thoms says. "There's been good demand from producers for the sales information, how to make the first contact, qualify the lead and then close the deal."

It's by following up on leadership development steps already taken that Phelan believes COMBOG also can make a difference. "About five years ago MBA provided grants to universities to develop courses on real estate finance,"he says. "It has been very successful, with the courses being oversubscribed by the students. It is now time to follow through with the next evolutionary step, and that is to place and hire these students in the industry."

Implementing and adopting industry standards/best practices

With MBA members originating the majority of commercial mortgages and much of the structured finance in the industry, the association is the right group to play a leadership role in developing and implementing industry standards, according to Hardy. Much of MBA's strength in this role comes from its success in working cooperatively in building industry coalitions. The implementation of commercial mortgage and multifamily standards and best practices for documentation, data and e-commerce are applauded in the industry, because they reduce inefficiency and unnecessary repetition in the commercial mortgage process.

MBA has worked successfully in the past year to help bring about special borrower-request checklists, the Loan Document Integrity Best Practices Report, CMBS Pooling and Servicing Agreements Article III and the launch of commercial mortgage data standards through the Commercial Working Group of the Mortgage Industry Standards Maintenance Organization (MISMO).

The work of the commercial/multifamily insurance task force, formed in 2002, led to the introduction of a new insurance form--ACORD Form 28 (Evidence of Commercial Property Insurance)--tailored to the commercial/multifamily industry, early in the tenure of COMBOG's new leadership. It will enable the industry to reap long-term benefits. The task force developed the updated form that summarizes existing property insurance coverage with the Association for Cooperative Operations Research and Development (ACORD).

"The new ACORD 28 will better help servicers, lenders and mortgage bankers track terrorism coverage, one of our highest-profile issues," Phelan says. The form has been endorsed by the Council of Insurance Agents and Brokers, Fannie Mae and Freddie Mac.

The MISMO Commercial Working Group is helping to bring thoughts of an electronic commercial mortgage closer to reality. "[The MISMO Commercial Working Group] will [create] the technology language of the industry," Phelan says, "allowing one master servicer to share information with another and with all other parties to the loan. Information can be entered once at the application and can flow through the process and to everyone's documentation." MISMO's commercial data standards will be responsible for the delivery of documents electronically, he adds. "It won't be long before we get electronic signatures in place, too," he says.

Improving borrower satisfaction

The interest rates on conduit/commercial mortgage-backed securities (CMBS) loans are attractive, but to borrowers the terms can seem rigid and the documents too complex. Hardy asks, "What do we need to do for borrowers to [make them] more comfortable with CMBS loans?" MBA, along with the Commercial Mortgage Securities Association (CMSA) and the Capital Consortium, is seeking the answers.

As a conduit CEO, Quinn brings plenty of insight to this crucial issue. "There are too many rules and regulations in CMBS," he says. "It is way too difficult for a borrower to interpret, and feel comfortable with, a complex, 300-page servicing agreement. Borrowers want more simplicity and flexibility, such as a simple request on loan assumptions." Defeasance issues also are too expensive for borrowers.

"Borrowers feel that CMBS is too rigid, that they can only do what's specifically in the documents [and] the pooling and servicing agreements, even if problems occur in their properties," Phelan says. "There is no right of substitution in a REMIC [real estate mortgage investment conduit], because of the tax consequences. You can't take a bankrupt loan out of a pool and replace it with a good one. We've got to work to gradually change this."

Jack Cohen, chief executive officer of Cohen Financial, Chicago, says that mortgage bankers are finding themselves caught in the middle "of one huge expectation management nightmare." They are finding that the capital users are not satisfied with their capital market experience, while capital providers "seem to value their relationship with the borrower the least." Changes must be made going forward in newly originated CMBS loans.

Quinn points out that COMBOG is looking at an approach that will work to modify the REMIC structure to make it more flexible for loan assumption, substitution and lease structures. "Down the road, we're seeking to petition Congress for REMIC changes that will still keep the structure nontaxable," he says. "In the meantime, we're working with CMSA on sharing more information with borrowers and mortgage bankers, to make the CMBS equation more understandable."

Quinn says that MBA and CMSA should work to make the information on best practices for loan assumptions, for instance, readily available on their Web sites. "We will create a clearinghouse of information. Most don't think a loan assumption under REMIC rules can be done, but it can--though it seems treacherous. Best practices available online would really help borrowers and mortgage bankers out," he says.

Enhancing political influence

Hardy says, "My concern over the years has been that we on the commercial side do not clearly understand the role of political advocacy--unlike the residential side, which has always gotten members active in legislative matters." He adds, "This is starting to change. Until the issue of terrorism insurance came up after 9/11, the commercial side did not have a steady stream of higher-profile issues."

Hardy adds that MBA's political action committee, MORPAC, is crucial to this process. "We must raise our share of the $1 million MORPAC goal and then get to know our elected representatives," he says.

Successful lobbying by MBA and the industry for the Terrorism Risk Insurance Act of 2002 (TRIA), which created a federal insurance backstop, brought many politically inexperienced commercial mortgage bankers into the legislative game, including Quinn. He says he realized that members of Congress actually want to hear from their business constituents on how policy affects them. After TRIA's passage, MBA followed up to make sure potential insurance gaps were covered in the final TRIA regulations.

Now COMBOG is seeking member support in laying the groundwork for TRIA renewal in 2005. The act expires on Dec. 31, 2005. "There is no doubt, with the informal polls I've taken with members, about the need to renew TRIA. Though, fortunately, we have not suffered another terrorist crisis," Hardy says. "We will keep Congress aware of this."

"TRIA renewal is very important, because we're just at the point where things are balancing in the market regarding insurance coverage," Phelan says. "Properties are receiving terrorism coverage in all-risk policies, but not much more. Without TRIA, even that would not be happening."

Though far more esoteric than terrorism coverage, the proposed New Basel Capital Accord (Basel II), risk-based capital guidelines for banking internationally, could have nearly as large an impact on commercial real estate finance. In a letter to U.S. banking regulators late in 2003, MBA pointed out that Basel II's proposed risk-rating system for commercial real estate loans could hamper the availability of capital for commercial and multifamily land acquisition, construction and development loans.

"The heavier capital reserve requirements for commercial real estate lending proposed under Basel II may therefore erode the competitive position of commercial banks relative to life insurance companies in the commercial real estate finance realm," MBA stated.

Hardy points out that MBA's position on the regulatory reform of Fannie Mae and Freddie Mac has not been altered in recent months due to the accounting problems at Freddie Mac. MBA supports a strong and vigorous safety and soundness regulator for the government-sponsored enterprises (GSEs).

The Department of Housing and Urban Development (HUD) is in the process of formulating new GSE affordable-housing goals for 2004, and MBA has weighed in with some recommendations. In an October letter to HUD, MBA suggested that HUD should establish housing-goal bonuses for the GSEs to cover low-income minority borrowers, underserved rural areas, the debt on smaller properties with low-income housing tax-credit assistance, and for purchase and renovation loans for two-to-four-family homes.

MBA also would like HUD to establish disincentives for Fannie Mae and Freddie Mac for the purchase of triple-A-rated CMBS backed by loans that qualify for goals credit. "The GSEs can get credit by purchasing only the safest, triple-A-rated traunches of commercial mortgage-backed securities, leaving the riskier traunches to other investors," MBA says. Such purchases do not increase the financing available for affordable housing, because triple-A traunches have many willing buyers, whereas the lower-rated, riskier traunches are more difficult to sell. HUD, therefore, should discourage the GSEs from gaining credit for CMBS purchases, MBA says.

Hardy says COMBOG also is working to re-energize FHA multifamily programs by pursuing the recommendations contained in a new FHA Empowerment Task Force Report to the MBA board of directors issued in December. The goal is a more flexible FHA for staffing and programs in the manner of a true government corporation. Part of the idea is to create a working capital fund from revenues generated by FHA's insurance funds to be used for upgrading FHA's financial management systems and other systems that will improve the agency's administration of its programs.

Petrie says that COMBOG is always vigilant about FHA credit-subsidy levels and calculations. Any miscalculations can fetter the volume of the insurance programs. One of the programs that generates a negative credit subsidy, which makes money for HUD, section 223(f) for refinancings and some repair, should have its mortgage insurance premium decreased to better reflect the risk, he adds.

The task force report also recommends that FHA implement underwriting changes to facilitate the refinancing of loans under section 202 for the elderly.

So COMBOG Chair Hardy faces a healthy list of challenges as he assumes the job of leading MBA's commercial/multifamily contingent. But he won't be alone as he rallies the members to pool their resources and expertise to achieve their goals in the year ahead.

Marshall Taylor is a freelance writer based in Annapolis, Maryland, and is the former editor of Real Estate Finance Today (REFT).
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Title Annotation:Cover Report; Commercial Real Estate/Multifamily Finance board of Governors' (COMBOG)
Author:Taylor, Marshall
Publication:Mortgage Banking
Geographic Code:1USA
Date:Jan 1, 2004
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