Archives for August 2019

At the start of 2019, Freddie Mac’s Multifamily Outlook forecast a continuation of the strong and stable market we have experienced throughout the past few years. We anticipated that new supply in certain markets would remain elevated because of the healthy construction market, demand for multifamily units would remain high due to ongoing demographic and lifestyle preference trends, and that rent growth and occupancy rates would remain above historic norms.
We got it right, with one important exception: interest rates. The 10-year Treasury rate was about 3.2 percent in November and we expected a rising rate environment that would push up mortgage and cap rates, slowing market growth. Instead, rates promptly fell 50 basis points in December and have since fallen another 70 bps. Today, there is speculation that the Fed might lower rates and the yield on the 10-year Treasury has hovered around 2 percent.
This lower-than-expected rate environment has grown the multifamily origination market substantially. We see this in publicly available industry data, and it is reflected in our new business volume. In fact, our Optigo lenders have continually reported increased mortgage demand over last year. Discretionary refinancing, sales activity and overall deal volume is much higher than we thought it would be.
As a result, volume for the entire multifamily origination market could be upward of $20 billion more than 2018’s record levels.
With our conventional production cap held constant at $35 billion, a larger market means that both agencies are focusing heavily on managing origination volumes so that we can continue providing liquidity, stability and affordability to the multifamily market through year-end. Despite these challenges, Freddie Mac’s prior approval underwriting model has allowed us to manage our pipeline with precision, and we fully expect to remain within the cap while managing increased inflows and mortgage demand.
With the continued strength in our origination business, Freddie Mac Multifamily has also worked to innovate our investor offerings. In June we celebrated the 10-year anniversary of our K-Deal platform, our signature innovation that has now securitized more than $300 billion in loans and fundamentally transformed how our business works. Today, we transfer nearly 90 percent of credit risk on newly acquired loans, securitized through the K-Deal and other credit risk transfer initiatives, to private investors, helping insulate taxpayers from potential credit losses.
Our continued credit discipline means our loans substantially outperform the market. In the first quarter of 2019, our delinquency rate was a mere 3 bps. In their history, our K-Deal structured securities have had less than 1 bp of losses and 99.96 percent of loans securitized by K-Deals are current.
More than 500 investors have participated in our K-Deals already, and we continue to broaden our investment offerings to attract diverse sources of private capital.
In January, we completed our first credit risk transfer offering through the Multifamily Credit Insurance Pool (MCIP). In May, we launched our Private Placement PC Swap execution, which is designed to provide liquidity to small mission-driven financial institutions. And we recently priced our very first K-G Deal, which exclusively securitizes workforce housing financed through our energy-efficiency Green Advantage® product.
These innovations and others have helped Freddie Mac continue meeting its mission of providing affordability, stability and liquidity to the multifamily market. Nearly 90 percent of the units we finance support housing affordable to renters earning area median income or below. And we work to diligently manage our business so that we can remain in every market through all business cycles, helping make home possible for more and more Americans every year.
By: Debbie Jenkins (NREI)
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New Mexico is the only U.S. state facing extremely high baseline water stress, according to data published this month by the World Resources Institute.
This latest report by the global research organization measures New Mexico’s overall water stress, and its conclusion is partly based on the state’s withdrawing more than 80% of its available water supply each year.
But Stacy Timmons, a hydrologist with the New Mexico Bureau of Geology and Mineral Resources and a new member of the Interstate Stream Commission, points out that different regions of New Mexico have different water demands, and labeling the entire state as extremely water-stressed may be “dramatic.”
“New Mexico has unique and complex geology,” Timmons said. “The northwest corner of the state is completely different from the southwest corner. It’s not one giant, well-connected aquifer. It’s hard to say how they measured water stress, because we (the state) don’t even have all that data yet.” Water stress is less about drought, and more about water demand. New Mexico is in a good water year, with the latest drought monitoring data showing only a small portion of the state is facing drought conditions.
But even if state water conditions were not reflected perfectly in the data, Timmons said the report is good for raising awareness about water usage and shortages here.
“Especially when you consider climate change, the quantity of water needed to grow (crops) and do what we need to do does not match up with our water supply,” Timmons said.
Drought hits hard in areas that need to satisfy growing water demands from industry, agriculture and municipalities.
“Such a narrow gap between supply and demand leaves countries vulnerable to fluctuations like droughts or increased water withdrawals,” the World Resources Institute report reads.
Paula Garcia is the executive director of the New Mexico Acequia Association, and another recently appointed member of the Interstate Stream Commission. Garcia said the World Resources Institute report was sobering and highlighted a need for responsible water stewardship now and for future generations.
Heavy reliance on groundwater can create an out of sight, out of mind mentality, according to Garcia, who grew up on a New Mexico ranch that relied on rainfall and runoff.
“It’s easier to live within your means when you see how much surface water you have and can look at the mountains and see how much runoff you will have,” Garcia said. “With groundwater, it’s harder to be conscious of where the water comes from and how much you’re pumping – that is, until the well goes dry.”
Garcia said state water management strategies could benefit from the traditional acequia focus on equitable water distribution during shortages instead of strict implementation of the water rights hierarchy.
“In New Mexico, water is life – el agua es la vida,” Garcia said. “Our traditions treat water with reverence and gratitude, and that is ingrained in New Mexico culture. Our water policies should reflect that.”
Both Timmons and Garcia said the report showed a lack of comprehensive groundwater data in New Mexico, which could better inform evaluations and lead to sound water management decisions.
In April, the governor signed the Water Data Act, which requires state agencies to standardize data on water quality, water levels and water use in New Mexico. The law also requires the agencies to submit an annual water management plan to the governor.
“A lot of our water data is still in paper form,” said Timmons, who manages a state aquifer mapping project. “In a few years, we’ll have this data in a more accessible, digital form that can be updated easily. Right now, when people ask how much water there is in our state, that’s not an easy answer. I do believe New Mexico can have a brighter future in terms of water.”
By: Theresa Davis (ABQ Journal)
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