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Detours on the road to recovery: Second liens and unemployment's drag on multifamily housing
comments (0) March 25th, 2009 in Blogs
Richard Defendorf, contributor
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The government and its constituents already have a lot of balls in the air as they try to juggle their way out of the economic mess, so what’s two more?
In the grand scheme of things, the two issues don’t top the list of troubles, but they are symptomatic of how tricky our economic landscape has become.
The first was noted earlier this week in a Reuters story about the difficulties the government will face as it tries to tweak its refinancing program – one of the keys to restoring stability to the housing market – in ways that will satisfy second-lien lenders. And during NAHB Multifamily’s Pillars of the Industry Conference, presented last week in San Diego by the National Association of Home Builders, participants agreed that current unemployment trends mean that recovery of the multifamily housing market will lag that for single-family homes.
The Reuters article pointed out that while big lenders generally support the housing rescue plan, they have misgivings about the Treasury Department's intentions for second liens, which, though smaller than first liens, nonetheless comprise significant portions of big banks’ loan portfolios. And Fannie Mae and Freddie Mac, these second lien holders can effectively block a refinance plan if they decide it’s not in their best interests.
"The (housing rescue) plan does nothing to benefit the second lien beyond attempting to provide a framework that allows the first lien to perform and get paid," Terry Francisco, a spokesperson for Bank of America, told Reuters.
The plan does not make clear whether the second lien holder will ever get paid off, although if the first lien continues to perform, odds improve for the health of the second mortgage, Francisco said. At this point, the story notes, there is little agreement about how to solve the problem.
As to the prospects for multifamily developments, NAHB Chief Economist David Crowe told the conference attendees that with credit and equity in short supply, and unsold housing being used for rentals until the overall economy improves, “the multifamily side will not be as quick to recover.”
Unemployment, meanwhile, is a major drag on the multifamily market. “A lot of your customers are people who have lost jobs,” Crowe added.
Economist Ron Witten, president of apartment-market specialist Witten Advisors, predicted multifamily rentals will fall below 100,000 this year, a record low, and head toward the 90,000 level in the year’s final three months.
He noted, however, that once the recession passes and the employment picture improves, “there will be more apartments rented than ever before” and net demand could surge by 500,000 units.
posted in: Blogs, business
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