Category Archives: State of the Industry - Page 2

U.S. Housing Price Rise Slows; Consumer, Investor Confidence Down

By Dees Stribling, Contributing Editor –

S&P Dow Jones Indices reported the latest S&P/Case-Shiller Home Price Indices on Tuesday, which cover the three months ending in September. According to the company, the National Home Price Index was 3.2 percent in the third quarter of 2013 and 11.2 percent over the last four quarters.

In September 2013, both the 10- and 20-city composite indexes gained 0.7 percent month over month and 13.3 percent since the same time last year. While 13 of 20 cities posted higher year-over-year growth rates, 19 cities had lower monthly growth in September than August. Prices are still rising, in other words, just not as rapidly as they had been, a trend that might mean that the current run up isn’t a much of a bubble.

“The second and third quarters of 2013 were very good for home prices,” David M. Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, said in a statement. “Housing continues to emerge from the financial crisis: the proportion of homes in foreclosure is declining and consumers’ balance sheets are strengthening. The longer-run question is whether household formation continues to recover and if home ownership will return to peak levels since in 2004.”

Consumer Confidence Drops

Consumers were feeling a little more uncertain this month, according to the Conference Board, which said on Tuesday that its Consumer Confidence Index dropped from 72.4 in October to 70.4 in November. The Present Situation Index edged down to 72.0 from 72.6, and the Expectations Index declined to 69.3 from 72.2 last month.

Consumers’ assessment of overall current conditions decreased slightly. Those claiming business conditions are “good” edged up to 19.9 percent from 19.5 percent, while those claiming business conditions are “bad” increased to 25.2 percent from 23 percent. Consumers’ appraisal of the job market didn’t change much, with those saying jobs are “plentiful” ticking up to 11.8 percent from 11.6 percent, while those saying jobs are “hard to get” decreasing to 34 percent from 34.9 percent.

Conference Broad chief economist Lynn Franco noted in a statement that “Sentiment regarding current conditions was mixed, with consumers saying the job market had strengthened, while economic conditions had slowed. When looking ahead six months, consumers expressed greater concern about future job and earning prospects, but remain neutral about economic conditions. All in all, with such uncertainty prevailing, this could be a challenging holiday season for retailers.”

Investor Confidence Down Too

The State Street Investor Confidence Index was released on Tuesday as well, and it came in at 91.3 in November, down 4.2 points from October’s reading. The decline was because a relatively steep drop in European investor confidence, down from 111.3 last month to 101.5 in November. Investor confidence in North America and Asia improved slightly.

Wall Street had a lackluster day on Tuesday, with the Dow Jones Industrial Average gaining a hard-to-see 0.26 points, or less than 0.01 percent. The S&P 500 managed to gain 0.01 percent, while the Nasdaq was up considerably more, 0.58 percent.

Homebuilders Still Confident

By Dees Stribling, Contributing Editor –

Builder confidence in the market for newly built, single-family homes was unchanged in November from a downwardly revised level of 54 in October, according to the National Association of Home Builders, which released its Housing Market Index on Monday. That means that for the sixth consecutive month, more builders believe market conditions are good than poor.

The index gauging current sales conditions in November held steady at 58, while the component measuring expectations for future sales fell one point to 60—both strong readers. The index gauging traffic of prospective buyers, which is the weakest component, dropped one point to 42.

“Policy and economic uncertainty is undermining consumer confidence,” NAHB chief economist David Crowe warned. “The fact that builder confidence remains above 50 is an encouraging sign, considering the unresolved debt and federal budget issues cause builders and consumers to remain on the sideline.”

Fewer Americans on the move

Americans aren’t moving as much as they once did, according to a report released by the Census Bureau on Monday. About 35.9 million U.S. residents, or 11.7 percent of all Americans, moved between during the 12 months ending in March 2013, down from 12 percent during the same period a year earlier. The decline in the nation’s overall mover rate follows an uptick from the record low of 11.6 percent for the period ending in March 2011. That means the 2013 mover rate isn’t statistically different from the 2011 rate.

Most moves are local. Nearly two-thirds of movers stay in the same county, and even those who leave their county didn’t move all that far away: 40.2 percent of inter-county movers relocated less than 50 miles away. Only 24.7 percent moved 500 or more miles to their new location.

Young Americans in particular aren’t moving at the velocity they once did, mostly because their employment situation (on the whole) isn’t nearly as healthy as their elders, and because fewer of them are buying houses than during previous decades. According to the bureau, only 23.3 percent of adults aged 25-29 moved in the 12 months ending March 2013. That’s smallest percentage in 50 years, and down from the previous year’s 24.6 percent.

Housing starts report postponed

Official numbers on housing starts in October were to have been released on Tuesday, but the Census Bureau said on Monday that the statistics would be out on Nov. 26, citing the rippling impact of the federal government shutdown last month. The September report, which wasn’t released at all last month, will come out at the same time as the November report. Normally timed data collection and data releases, the bureau says, will resume with the release of the November data in December.

Wall Street held steady on Monday until near the end, when sellers started outpacing buyers. Still, the Dow Jones Industrial Average eked out a gain of 14.32 points, or 0.09 percent. The S&P 500 lost 0.37 percent and the Nasdaq declined 0.93 percent.

Reis 3Q Briefing Gives Reason for Optimism

By Scott Baltic, Contributing Editor – Commercial

“All indicators are pointing toward another year of recovery” was the optimistic bottom line of Wednesday’s Q3 2013 Capital Markets Briefing from Reis Inc. Hosted by Reis senior economist Ryan Severino, the conference call promised to tackle angles such as economic growth and the capital markets, interest rates and cap rates, and the GSE pullback.

Though he cautioned that the data are still preliminary, Severino said that GDP growth at an annualized 2.8 percent in the third quarter is better than what had been expected by many and added that job creation figures look good: “We are now ahead of last year’s pace of job creation.”

He does, however, expect a slowdown in growth in the fourth quarter, in part because of lingering effects from the government shutdown.

In the office sector, Severino said, “demand continues to slightly outpace new construction.” He noted, though, that improvement in the office sector has been largely concentrated in a limited number of markets, such as metro areas with strong high-tech industries.

In the multi-family sector, “the market has hit a floor, at least temporarily,” he said, and any future cap rate compression will be “far more gradual.”

As for retail, Severino said, there’s “more evidence that retail cap rates have hit a floor.” This product type, he said, is the one “arguably with the weakest recovery,” not least because “consumer spending remains depressed.”

An examination of 12-month rolling cap rates found that, like last quarter, “we’re getting complicated results,” he said, with a few markets represented in the top 10 for one product type and the bottom 10 for another. (Detroit, for example, is in the top 10 in retail (3.7 percent) and in the bottom 10 (11.1 percent) in multi-family.)

These anomalies, Severino explained, are probably caused by a “shallow transaction environment.”

The briefing highlighted a string of positive signs for the economy and the CRE sector.

* The Mortgage Bankers Association’s Originations Index has approximately tripled since the lows of 2009, from roughly 50 to about 150 (100 = the 2001 quarterly average).

* A year-over-year decline in outstanding balances on GSE loans obviously reflects those entities’ mandate to cut their originations, but Severino also suggested that the GSEs would in any case be getting more competition in the current multi-family lending market.

* The CMBS recovery remains intact, with originations on track to total $80 billion this year, “well ahead of predictions,” according to Severino.

* A Federal Reserve survey of bank senior loan officers found a higher percentage reporting stronger loan demand than at any time in the past 13 years.

* The overall commercial mortgage delinquency rate, now at 2.7 percent, has fallen 300 basis points in three years. Or, as Severino put it, “It’s coming down about as fast as it went up” from 2008 to about 2010.

One intriguing question toward the end of the conference call was whether cheap capital is artificially inflating CRE prices. Severino answered that two quarters ago he might have said yes, but that the improved economy has allayed some of those concerns.

The economy is probably more resilient than many thought, Severino said, and though the credit market will remain “choppy in the short term,” if the capital markets behave well, “We could be on the verge of a real recovery.”

Fed Mulls Tapering in Near Future; Inflation Still Nonexistent; Existing Home Sales See Downtick

By Dees Stribling, Contributing Editor –

The Federal Open Market Committee released the minutes from its Oct. 29-30 meeting on Wednesday, and one of the more closely watched subjects taken up in was tapering. The question now isn’t whether to taper, but how much and exactly when. The central bank hasn’t quite made up its mind about that yet – but the minutes seem to say that it will be a matter of months before tapering kicks in, albeit gradually.

“During this general discussion of policy strategy and tactics, participants reviewed issues specific to the Committee’s asset purchase program,” the FOMC minutes said, referring to the $85 billion worth of bond buying that the Fed has been doing every month. “They generally expected that the data would prove consistent with the Committee’s outlook for ongoing improvement in labor market conditions and would thus warrant trimming the pace of purchases in coming months.”

Perhaps more importantly for the long-term health of the economy, the FOMC also discussed at length the federal funds rate, which is currently next to nothing. The committee said it was thinking about a way to tell markets that the rate is going to remain that low for a long time, and whether to lower the unemployment rate threshold for considering any rise in the rate.

The minutes – in their long-winded way – said that “as part of the planning discussion, participants also examined several possibilities for clarifying or strengthening the forward guidance for the federal funds rate, including by providing additional information about the likely path of the rate either after one of the economic thresholds in the current guidance was reached or after the funds rate target was eventually raised from its current, exceptionally low level.” We’ll get to it when we get to it, in other words.

Inflation Still Nugatory 

One of the persistent worries about QE3 – at least among a certain class of economists – is that the stimulus will cause inflation. So far, however, inflation refuses to rear its ugly head: the Bureau of Labor Statistics reported on Wednesday that the all-urban CPI in October dropped 0.1 percent, mostly because of declines in the price of gas. Over the last 12 months, the all-items index has increased 1 percent.

The gasoline index fell 2.9 percent in October. Other energy prices were mixed, with electricity rising, but fuel oil and natural gas declining. The food index rose slightly, with major grocery store and food group indexes evenly split between advances and declines. Take food and energy out of the picture, and prices were up 0.1 percent in October.

Everything else was likewise a mixed bag in terms of price increases and decreases. The price of shelter rose, but at the slowest rate since the end of last year. Air fares, recreation, and used cars and trucks also became more expensive. Medical care – surprisingly — was unchanged, while apparel, household furnishings, and new vehicles all became less expensive.

Existing Home Sales See Downtick

The National Association of Realtors reported on Wednesday that total existing-home sales dropped in October to an annualized rate of 5.12 million units, down 3.2 percent compared with September. Year over year, sales are better: the current rate is 6 percent higher than the 4.83 million-unit level in October 2012. Sales have remained above year-ago levels for the past 28 months.

The national median existing-home price for all housing types was $199,500 in October, up 12.8 percent from October 2012, which is the 11th consecutive month of double-digit annual increases, the Realtors reported. Distressed properties – foreclosures and short sales – accounted for 14 percent of October sales, unchanged from September, but very much changed from October 2012, when they were 25 percent of the total. Part of the gain in median price is from a smaller share of distressed sales.

Total housing inventory at the end of October declined 1.8 percent to 2.13 million existing homes available for sale, which represents a five-month supply at the current sales pace, according to NAR. The supply was 4.9 months in September. Unsold inventory is 0.9 percent above a year ago, when there was a 5.2-month supply.

Wall Street didn’t much like what the FOMC minutes had to say on Wednesday, with an up day turning into a down day as soon as they were released. The Dow Jones Industrial Average dropped 66.21 points, or 0.41 percent, while the S&P 500 and the Nasdaq were down 0.36 percent and 0.26 percent, respectively.

Multifamily Players Dare to Hope GSEs Won’t Be Dismantled

By Erika Morphy –

WASHINGTON, DC-There is a growing sense in the multifamily industry that, despite the strong push to privatize housing finance, Fannie Mae and Freddie Mac may not be unwound. It doesn’t hurt that both GSEs have posted strong profits in recent years. Also, as politicians get closer to the reality of what it would entail to sell off parts or all of the GSEs, the more practical-minded they become about the mission. The intense lobbying campaign by the industry has likely had some sway as well, says one player. “I think Congress didn’t realize how important the GSEs are to housing finance—they liquidity they provide in the capital markets, especially the multifamily side,” this person tells “They certainly didn’t realize how profitable the multifamily side is.”

To be sure, the official party line in Washington is that the GSEs are headed for an exit at some point. Certainly the Federal Housing Finance Agency continues to push the GSEs to conserve, to scale back lending and otherwise shrink. Also the GSEs themselves are positioning their operations for the day when the private markets will be the main source of finance in this space. Earlier this month Fannie Mae priced its inaugural credit risk sharing transaction under its Connecticut Avenue Securities (C-deals) series—transactions is which The GSE transfers some of the retained credit risk to investors in exchange for sharing a portion of the guaranty fee payments.

Then there are the comments Fannie Mae’s CEO Timothy J. Mayopoulos, made at the recent Mortgage Bankers Association meeting.

He spoke of building a sustainable housing finance system and on his list of what would comprise such an ecosystem was private capital that stands “in front of the government to withstand market downturns. The amount of this private capital needs to be substantially higher than the capital the GSEs historically held.”

DFW Apartment Market Good for Landlords, Investors–For Now

By Dees Stribling, Contributing Editor –

Dallas—Even though the Dallas-Fort Worth area never quite suffered the housing slump that many other U.S. markets did, the area’s relatively robust economy is creating new households that are tightening the apartment market. In fact, according to the recently released 2Q report by investment specialist Marcus & Millichap, employment gains in the Metroplex will be nearly 3 percent in 2012, nearly double the national average, and job seekers will be moving into the area, especially from less-than-robust markets in the Midwest and on the West Coast.

“As a result, leverage in lease negotiations will remain firmly on the side of apartment operators through the end of the year, spurring strong revenue gains,” the report predicts. In short, DFW apartment landlords are going to be in clover for the time being.

By the end of 2012, asking rents will have risen 3.4 percent to an average of $823 per month. Effective rents will rise at a faster clip of 4.2 percent as owners pare concessions, pushing the average to $744 per month by year-end, the report says.

But Marcus & Millichap also notes that there will (eventually) be some headwinds for landlords. Year-over-year, home sales in the market are up 20 percent, an indication that more renters are transitioning into single-family homes. Foreclosure activity is up more than 10 percent in 2Q12 from the second quarter of 2011, mitigating attrition from apartments to the housing market. But as foreclosure activity begins to abate and new construction of multifamily rental properties accelerates next year, apartment operators may have to react quickly with concession offerings to maintain the current tight occupancies.

New apartment construction is predicted to be quite vigorous in the coming quarters. Apartment completions will nearly triple in 2012, as about 8,100 units will come online by the end of the year. “Based on the rapidly expanding development pipeline, another dramatic increase in deliveries appears likely next year,” the report says.

In the meantime, investors are getting into the market while the getting is good. Transaction velocity will continue to escalate this year as out-of-state investors target large, better-quality deals in the Metroplex, the report anticipates. Despite cap rate compression through the past several quarters, local apartment properties continue to spin off stronger returns than similar assets in coastal markets.

For example, Class A cap rates for Metroplex multifamily can start as low as 5.5 percent, which still offers a 50- to 75-basis point premium over East Coast and coastal California metros. While investor demand for top-quality DFW assets remains elevated, prices are hovering near new construction costs, which may hamper the pace of appreciation over the next year. At the same time, though, the Class B sector may record further price growth, as many investors priced out of the Class A market shift their appetites to large Class B+ properties. Within this segment, prices for well-located 1980s assets have pushed above $40,000 per unit, changing hands at cap rates in mid-7 percent range.

Residential Price Increase Still Strong; Homeownership Slightly Up in 3Q

By Dees Stribling, Contributing Editor –

CoreLogic reported on Tuesday that home prices nationwide, including distressed sales, increased 12 percent on a year-over-year basis in September. This change represents the 19th consecutive monthly year-over-year increase in home prices nationally, according to the company. On a monthly basis, including distressed sales, home prices increased by 0.2 percent in September compared to August.

Taking distressed sales out of the equation, notes CoreLogic, and home prices increased year over year by 10.8 percent in September. Month over month, excluding distressed sales, residential prices increased 0.3 percent in September compared to August. The company counts both short sales and REO transactions as distressed sales, which in recent years have progressively become less and less a factor in most markets.

CoreLogic’s House Price Index, for which the year 2000 = 100, has been hovering below 150 since the end of the recession, though lately it’s been higher than 150. The bubble peak for the index was in 2006, when it briefly touched 200.

Homeownership Up Slightly in 3Q

The Census Bureau reported on Tuesday that the U.S. homeownership rate came in at 65.3 percent of households in the third quarter of 2013, its lowest 3Q level since the mid-1990s, up still up from the previous two quarters. During the first two quarters of this year, the rate remained at 65 percent; in the third quarter of 2012, the rate was 65.5 percent of households.

At the height of the housing bubble in 2006, 69.2 percent of all households owned their homes, but that number proved unsustainable in the face of the contraction of the housing market, the subprime meltdown, and the Great Recession. In the post-recession era of tighter lending standards and fewer middle-class jobs, that peak will probably not be reached again soon, if ever.

The demographics of employment is also a factor in holding down the rate of homeownership. Younger workers have suffered more unemployment than their middle-aged counterparts in recent years, and thus have less money to put into home buying and no equity to turn to for a downpayment. According to the Census Bureau, 63 percent of adults 18 to 31 had jobs in 2012. In 2007, before the recession, 70 percent that age group was employed.

Wall Street had a mild mixed day on Tuesday after starting out a lot lower, with the Dow Jones Industrial Average off 20.9 points, or 0.13 percent, and the S&P 500 down 0.28 percent. The Nasdaq managed to eke out a gain of 0.08 percent.

Economy Watch: Banks Loosen Lending Standards on Business Loans

By Dees Stribling, Contributing Editor – 

The Federal Reserve reported on Monday in its October 2013 Senior Loan Officer Opinion Survey on Bank Lending Practices that U.S. banks have eased their lending standards in some cases, while experiencing little change in the demand for some kinds of loans over the past three months. The point of the survey is to examine any changes in the standards and terms on, and the demand for, bank loans to both businesses and households.

The October survey found that banks eased their lending policies for commercial and industrial loans, even though there was little change in demand for such loans over the past three months. But since there are more lenders in the field than there used to be, the domestic banks that eased their commercial and industrial lending policies cited increased competition for such loans as an important reason for doing so.

The survey results also indicated that banks, on the whole, didn’t substantially change standards or terms on lending to households, which are still relatively tight compared to pre-recessionary standards. A few respondents, including a few large banks, reported easing standards on prime residential mortgage loans. The survey is based on the responses from 73 domestic banks and 22 U.S. branches and agencies of foreign banks.

Mortgage delinquencies edge up in September

LPS released its September Mortgage Monitor on Monday, reporting that 6.46 percent of U.S. mortgages were delinquent in September (over 30 days late, but not in foreclosure). The company also reported that 2.63 percent of mortgages were in the foreclosure process during the month, making a total of 9.03 percent in nonperforming mortgages for September.

The delinquency rate was up for the month from 6.2 percent in August, though most of the increase is attributable to seasonal factors. Year-over-year, the number of loans in foreclosure is down from 3.86 percent in September 2012. About 1.33 million loans are currently in the foreclosure process.

According to LPS, the states with the highest rates of non-current loans (delinquent and in foreclosure) in September were Florida, Mississippi, New Jersey, New York and Maine. The states with the lowest rates were Wyoming, Montana, Arkansas and both of the Dakotas.

Wall Street had a mild up day on Monday after wobbling around a lot, with the Dow Jones Industrial Average gaining 23.57 points, or 0.15 percent. The S&P 500 was up 0.36 percent and the Nasdaq advanced 0.37 percent.

U.S. Apartment Market Sustains Strong Performance During Q3 2013

Apartment occupancy remained tight during the third quarter while rents continued to climb at a pace above the historical norm giving the U.S. apartment market another strong performance during the third quarter of 2013, according to MPF Research, the Carrollton-based apartment market intelligence firm.

The healthy quarterly performance reflected strong leasing activity at new developments coming on-stream plus solid pricing power at most already-full existing properties.

In this exclusive video report, Greg Willett and Jay Parsons from MPF Research highlight the nation’s latest apartment occupancy and rent growth statistics as well as other key performance indicators.

For additional information, read the related press release.

U.S. Apartment Market Performance Highlights Q3 2013

Occupancy: Occupancy in the nation’s 100 largest metros averaged 95.4 percent during the third quarter. Occupancy has been hovering around the essentially-full mark of 95 percent for two years, with slight moves seen from one quarter to another aligning with normal seasonal patterns.

Rent Growth: Effective rents for new leases grew 1.2 percent during the quarter, taking the annual pace of increase to 3.2 percent.

Apartment Demand: Demand for 47,107 apartments registered across the country’s 100 largest metros against 44,799 units finished during the third quarter.

Top 10 Rent Growth Leaders: Oakland Surges to Top Spot

Among large individual metros, Oakland moved into the #1 position on the list of the country’s annual rent growth leaders as of the third quarter. Pricing for new leases grew 7.9 percent during the past year. Denver-Boulder’s ranking also improved, as the market’s 6.8 percent annual rent growth pace was the second-best nationally. While San Francisco slipped from its previous top spot for annual rent growth, pricing power remained strong. The next three positions also went to metros in the red-hot Pacific Northwest region.

Rent Growth Leaders in Q3 2013
Rank Metro Annual
1 Oakland 7.9%
2 Denver-Boulder 6.8%
3 San Francisco 6.6%
4 (Tie) San Jose 5.9%
4 (Tie) Seattle-Tacoma 5.9%
6 Portland 5.7%
7 Miami 5.0%
8 Houston 4.8%
9 (Tie) Austin 4.2%
9 (Tie) Nashville 4.2%


Metros that just missed the cut-off point for the best-performers list included Fort Worth, West Palm Beach and the southern California trio of Orange County, San Diego and Los Angeles.

From Fannie + Freddie to FHA

By Keat Foong, Executive Editor –

Multifamily housing has been the fortunate beneficiary of Fannie Mae, Freddie Mac and FHA financing programs. While the two Government Sponsored Agencies are now targeted for elimination, the Federal Housing Administration (FHA) multifamily loan insurance programs, as it turns out, may not necessarily escape existential threats either. It appears the same questions about the role, size and risks of the government agencies can also be applied to the FHA.

In the latest development, the Protecting American Taxpayers and Homeowners (PATH) Act, which has been introduced in the House, proposes to impose affordability requirements on multifamily properties receiving FHA insurance. “FHA is clearly facing legislative challenges,” agrees Claudia Kedda, senior director, Multifamily and Affordable Housing Finance. “Efforts to reform the single-family program have put pressure on HUD to also take steps to mitigate risk on the multifamily side.”

Besides possible legislative pressure to overhaul the decades-old FHA financing insurance program, developers who use the FHA mortgage insurance programs, whether for construction or acquisition financing, are also meeting other challenges: FHA’s impending exhaustion of loan commitment limit of $25 billion, the reorganization and reduction of the number of HUD field offices, and FHA risk mitigation measures.

All these pressures on FHA are coming at a time of unprecedented demand for the FHA multifamily and healthcare insurance programs. As a sign that the economy is improving, commitment authority is being used at a significantly faster pace than last year, says Kedda. “FHA, Fannie Mae and Freddie Mac continue to provide the bulk of financing for multifamily rental housing at this time,” says Kedda.

On the legislative front, the PATH bill would require FHA multifamily loans to meet occupancy and rent requirements based on area median income, as well as separate FHA from HUD. The bill, sponsored by Jeb Hensarling (R-Texas), aims to “slim down FHA in general,” comments Steve Wendel, executive managing director of Berkeley Point Capital LLC. “There is political pressure from Congress, and political debate on the proper size of FHA and the government’s role.”

Steps to mitigate risks on the multifamily side have already been undertaken, but there is pressure to narrow FHA’s mission, and impose capital reserve requirements on the insurance fund which is not currently required by statute, adds Kedda. “These are concerns for NAHB,” says Kedda because they can affect the availability and cost of financing for a broad range of housing.

Stillman Knight, president and CEO of The Knight Company, and deputy assistant secretary for Multifamily Housing Programs at the FHA office at HUD from 2003-05, would not brush off the seriousness of these legislative initiatives. “I am very concerned that the conversation on the Hill represents a significant threat to the traditional role of FHA,” says Knight.

Knight says that of the three concerns, supplemental funding, multifamily reorganization and FHA reform, “the greatest threat in my mind is the idea on capitol hill that housing no longer fulfills a public purpose and should be financed by the private sector without a government backstop. Our housing finance system is the envy of the world, and we will not make it better by abandoning the basic principles that made it so. Since 1934, FHA has been able to provide a cushion during recessions and for underserved areas of our great nation. It does so by serving a broad range of capital structures providing diversity and strength to its business model and its mission.”

Kedda adds that the vast majority of FHA-insured rental properties already serve households well below the 115 percent of area median income limit that is included in the draft discussion bill. Such income limit requirements may also mean requiring developers and property managers to income certify over the life of unsubsidized loans, which is “burdensome, costly and unnecessary,” she says.

For Wendel, besides the legislative threat, the greatest challenge facing FHA is the plan to consolidate the HUD multifamily field offices over the next three years. The biggest question is “how you can manage a major consolidation and retain staff at the same time. A lot of the staff may choose not to move,” says Wendel. A related question is the impending retirement of the experienced and skilled staff, with more than half the staff eligible for retirement in the next few years, said Wendel.

“Certainly, the [HUD field office reorganization] is going to be difficult on the staff and the customers who build relationships in the local offices—no question about that,” adds Knight.

Loan commitment is another issue that has emerged in recent months, as it has in prior years. In June, HUD announced that because it was approaching its $25 billion loan commitment authority for FY 2013, it would have to prioritize remaining applications. Priority will be applied in the following order: projects affected by Hurricane Sandy, affordable transactions, and market-rate transactions.

As NAHB points out, the commitment authority does not cost the federal government money, as the FHA mortgage insurance premium generates enough revenue to cover the cost. FHA has requested an additional $5 billion for the remainder of FY 2013. However, NAHB said, it is unlikely that Congress will grant HUD the additional commitment authority before the August recess, although in years past industry efforts to convince Congress to pass bills to provide enough commitment authority until the new fiscal year have been successful and the programs continued uninterrupted.

“In this very difficult economic environment, and with continuing issues related to the FHA single-family programs, there is great reluctance by Congress to allow a bill to solve this problem,” says Kedda.

On the plus side, HUD did request $30 billion in commitment authority for the FHA multifamily and healthcare programs for the next fiscal year, FY 2014, which starts in Oct. 1. So far, both the House and Senate appropriations committees have included the higher funding number of $30 billion in the HUD appropriations bill, says Kedda.

Nevertheless, as an indication of the high level of demand for the program, even this increased funding for FY 2014 may not be enough. “There are many commitments that are waiting in the queue right now for Oct. 1 authority to be available, and those will continue to stack up,” reports Tyler Griffin, vice president of originations at Beech Street Capital. “This means a large number of transactions will be committed in the first quarter of HUD’s FY 2014, causing some concern about the authority again running out before the second half of FY 2014.”

Griffin suggests that the resulting delays caused by the dwindling FHA authority can kill deals in an environment of rising interest rates. Other deals that were time-sensitive had to be refinanced via alternate sources, whether the GSEs, or CMBS. However, only about 20 percent of Beech Street’s transactions have been affected by lower proceeds or had to be refinanced. Many “HUD borrowers are generally prepared for timing issues and have started working on their transactions with a good cushion in place. A 45-day wait for new authority hasn’t put them in the red,” says Griffin.

While the amount of FHA commitment may still be a problem, others in the industry seem less concerned that legislative challenges will be serious. There is strong political support for the FHA program in general, including support from the HUD secretary and the Obama Administration, says Wendel. “Hensarling really wants to reduce the footprint of GSE and FHA. But personally, I don’t think there is support for that type of radical restructuring of housing,” says Wendel.

“The House proposal represents the right in its proposal to reform FHA and the housing finance system, but unfortunately, the senate proposal doesn’t vary enough from the House proposal to offer a reasonable compromise in a subsequent negotiation,” says Knight. Stay tuned.