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Secondary markets expect record year.

It's been a while since there was any good news about real estate financing. Since 1989, most news has been that tax laws and regulators have attacked the real estate market in attempts to bring down the federal budget deficit. Most prominent in this effort was the FIRREA legislation and its now legendary lender requirements for risk-based capital.

Risk-based capital rules are hard on real estate yet soft on other investments such as Treasury securities. In today's low rate environment, when the Treasury needs to find sources to finance the deficit, it becomes convenient and necessary to encourage banks to invest in Treasuries. Yet banks and thrifts are told to stay out of commercial real estate.

What goes unnoticed are the changes that have occurred in the secondary market. As traditional sources of financing dried up in 1991, activity in the secondary markets picked up. During the fourth quarter of 1991, the level of activity at Fannie Mae, Freddie Mac, and on Wall Street was substantial.

This means more standardization, more disclosure and more time before a transaction is approved for financing. Multi-family lending benefits from these changes. Thanks in large part to the efforts of Fannie Mae and Freddie Mac, multi-family lending is sufficiently standardized for efficient secondary market treatment.

On the commercial side, Wall Street has taken advantage of the opportunities and by year end 1991, $4 billion of commercial real estate financing was being packaged for securitization. Earlier this year, the RTC issued a REMIC that was underwritten by Wall Street for $400 million of multi-family loans. Washington Mortgage expects to unveil its own REMIC for multi-family loans in the near future.

There is a shift underway in the manner that capital is made available to the real estate market. Some of it is designed to reduce the risk that primary lenders have taken. Some of it is people trying to take advantage of the primary lender exodus from real estate. All of it is evidence that significant change has and will occur. The property owner's challenge will be to stay abreast of changes. Financing will be available for the right investments.

Washington Mortgage, which manages a loan portfolio in excess of $4.5 billion, is unique in that our organization may be the only firm in the country that has capital market capabilities and is also a Fannie Mae DUS lender, a licensed FHA mortgagee, and servicer for Freddie Mae, which we anticipate will re-enter the market for new business within the year. At Washington Mortgage our corporate credo is "Smart solutions, sound advice," and for the right opportunities, there will be smart solutions.
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Title Annotation:Finance; secondary financing in real estate
Author:Kokalari, Gary Q.
Publication:Real Estate Weekly
Date:May 20, 1992
Words:438
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