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If 2008-2009 were the years of the real estate collapse, 2014-2015 were the years of the real estate collapse movie.
But while The Big Short and 99 Homes focused on how unchecked lending practices could impact the general public, stricter regulations in the wake of the housing crisis mean lenders will need to adapt to survive.
Going forward lenders will need to accommodate a safer environment for investors by holding on to a piece of each tranche that is issued. The new rule is called risk retention, and it's designed to prevent the securitization market from selling off unsavory securities to investors.
As banks plan to adjust their strategies heading into 2017, Jim Flynn of Hunt Mortgage Group tells Bisnow agency lenders like his will not be as hampered as their banking counterparts.
The executive managing director and chief investment officer of Hunt feels that as the lending arena becomes more constrained, non-institutional lenders could even benefit from the restrictions.
“On the agency side of our business, I expect minimal impact. There could even be an uptick because the agency multifamily lending market is always attractive, if not the most attractive place for multifamily borrowers,” Jim says. “Commercial lending obviously still needs to occur and if the market doesn’t shrink, that business will need to go somewhere."
While lenders like Hunt may see an increase in those looking for loans in the coming years, it doesn’t mean that they’ll be able to take on all comers. In fact, their standards may have to be raised higher than ever before.
Jim projects the reduced liquidity in the lending space will drive tighter underwriting standards across the board.
“You’ll only want to do the best deals or deals that you know that you can sell,” Jim tells us. “You may be turning away what are otherwise perfectly fine and creditworthy deals because of your fears of not being able to find a home for them.”
The bottom line for Hunt is that it will be prepared. According to Jim, Hunt has long been focused on growing the commercial side of its business and going forward it’ll be picking up some of the private, newly structured arrangements where it can team with an institutional lender.
Hunt would hold the risk portion of the loan and structure an arrangement with a partner that will allow the institutional lender to borrow against the credit stack.
To learn more about our Bisnow partner, click here.
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