Is the Multi-Family Housing bubble ready to pop?




By Matt Joy, Princeton Mortgage


The Wall Street Journal is covering a story that could quite possibly topple the multi-family housing market (yikes… that’s heavy for a Monday Morning). I think the start of every week should include a cup of coffee, federal search-warrants, fraud-conspiracy indictments, and mortgage backed securities made up of bad loans. If you didn’t know it you’d think I was talking about 2008 but unfortunately, I’m not. We’re smack dab in the middle of what appears to be the biggest “wool-over your eyes” moment since the financial crisis.


Complete irony here… as the report starts in an apartment complex in Pittsburgh, Pa. It’s alleged that owners of these apartments are falsifying occupancy by setting out floor mats, decorating doorways, turning on radios/TVs in vacant units and even claiming certain occupants are sleeping during the time of inspection. All of which worked… leading to a $45.8M loan that was securitized and sold off to investors. Soo… what you’re saying is that there are MBS’s out there with bad loans propping them up? Sound familiar anyone?


As we all know, the housing crisis made the agencies (Freddie Mac & Fannie Mae) tighten their grip on regulation and oversight for the single-family housing market… but they didn’t really focus their attention on multi-family housing. Why would someone have to document if the owners have enough money to pay the loan back? That doesn’t make sense… haha right? Well, you don’t really have too. As long as the properties earn enough to repay the loan… boom APPROVED/ELIGIBLE. Lenders don’t really check each and every lease to ensure a tenant is staying there… that takes time and people want their money fast! I have no clue how this will play out… but what I do know is that it’s going to be ugly, because this report goes into heavy detail about how the large real estate investment firms have schemed their way into millions of dollars. It also begs the questions as to whether or not this investigation will make any ripples into the single-family market. I’m not sure if we’ll want any more sniffing around… as originating a loan in this highly regulated environment is hard enough.


The 10-yr is down to a nice comfortable 2.836% to start the week as a result of the Kansas City Federal Reserve’s meeting in Jackson Hole Wyoming. The meeting sounds fun! A bunch of old bankers debating interest rate policy in Wyoming… sign me up!! Also… take a peek at this report that says the housing market is turning back into a buyer’s market. Could we be entering into a nice Autumn (sounds better than Fall) buying season? For those originators who are focused on purchases (sooo… like everyone) it might be a good idea to double down on those relator relationships and set yourself up for a nice long winter break!


Talk to you soon,

MJ


The opinions expressed in this post are the sole view of the writer and do not reflect the opinion of Princeton Mortgage Corporation. 

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