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Commercial Mortgage Lender Appetite Expected to Exceed that of Borrowers in 2014

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Commercial and multifamily mortgage lending is expected to increase in 2014, as lenders’ appetites to place new loans grow even stronger, according to a new Mortgage Bankers Association survey of the top commercial and multifamily mortgage origination firms. Lenders were also polled on their expectations for borrower appetites in the New Year. A full 91 percent of the top firms expect originations to increase in 2014, with 48 percent expecting an increase of 5 percent or more. Almost two-thirds (64 percent) expect their own firm’s originations to increase by 5 percent or more.

“Commercial and multifamily lenders anticipate a market in which lending continues to grow and their firm gets a bigger piece of the pie,” says Jamie Woodwell, MBA’s Vice President for Commercial Real Estate Research. “Borrowers’ appetites to take out new loans are expected to remain strong, but perhaps drop a bit from 2013 levels. The resulting competition to lend leads originators to expect loan risk to increase marginally in the face of moderating returns.”

A majority of respondents expect originations for commercial mortgage backed securities (CMBS), commercial banks and life companies and pension funds to increase, and for originations for Fannie Mae, Freddie Mac and FHA to decrease. 65 percent anticipate a “very strong” appetite among firms to make loans and 23 percent anticipate a “very strong” appetite among borrowers to take out loans. Lenders were surveyed on a scale of “very weak, weak, fair, strong, or very strong.”

Specific findings include:

• In 2013, lenders had a “very strong” appetite to make commercial and multifamily mortgages. Borrowers had a “strong” appetite to take out loans.

• In 2013, lenders were more eager to make loans than borrowers were to take out loans. A “very strong” appetite among lenders (53 percent of respondents) to make new loans in 2013 faced a “strong” appetite among borrowers to take out new loans (63 percent of respondents).

• In 2014, lenders are expected to have a greater appetite to place loans, and borrowers a weaker appetite to take out loans. Compared to 2013, an even greater share of respondents expect lenders to have a “very strong” desire to make loans (65 percent of respondents anticipate “very strong” appetite versus 53 percent in 2013) and more expect borrowers to have only a “fair” appetite to take out new loans (23 percent versus 16 percent in 2013).

• Originators expect the market to grow at a moderate pace in 2014 (and their own firms to grow more quickly). Almost half (48 percent) of respondents expect total market originations to increase 5 percent or more in 2014. Almost two-thirds (64 percent) expect their own originations to increase by 5 percent or more.

• Loans for commercial mortgage-backed securities (CMBS), banks and life companies are expected to increase in 2014; loans for Fannie, Freddie and FHA to decrease. Originations are expected to increase for commercial mortgage-backed securities (85 percent anticipate growth to be greater than 5 percent), bank portfolios (78 percent anticipate growth to be greater than 5 percent) and pension/life insurance companies (56 percent anticipate growth to be greater 5 percent) and decrease for Fannie Mae and Freddie Mac (60 percent anticipate declines) and FHA (51 percent anticipate declines).

• Loan risk is expected to increase in 2014. Most respondents characterized the loans made in 2013 as “medium” to “somewhat low” risk (88 percent). In 2014, more respondents expect loans to be “medium” to “somewhat high” risk (89 percent). Lenders were surveyed on a scale of very low, somewhat low, medium, somewhat high, and high.

• Loan return is expected to moderate in 2014. Half of respondents (50 percent) characterized the loans made in 2013 as “medium” return. In 2014, nearly three-quarters (74 percent) expect loans to be “medium” return.

The 2014 MBA CREF Outlook Survey was conducted between December 11 and December 20, 2013. The Survey request was sent to leaders of 50 of the top commercial/multifamily mortgage origination firms, as determined by MBA’s 2012 Annual Origination Rankings Report. The survey had a response rate of 64 percent. Percentages shown are calculated based on applicable responses. Non-responses and “n.a.” responses are excluded from the percentage denominator.

Source: Mortgage Bankers Association

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