Today’s Fed Meeting Notes removed all calendar references, indicating that rate hikes will be data driven. The consensus is still anticipating a September hike. First quarter GDP, reported today, was an anemic 0.2%. This continues the trend of recent years of sluggish, inconsistent growth (two good quarters followed by a sharp slowdown, first quarter GDP was negative in 2011 and 2014). Treasury yields actually rose today (10 year T hit 2.05% today, as investors now are looking forward to expected strong 2nd and 3rd quarter numbers that would stimulate inflation and higher interest rates. Supply also came into play as the US auctioned $28b in 7 year notes and lots of new government debt issues in Europe (Italy, UK, Portugal, and Germany). Meanwhile, China is expected to engage in their own version of quantitative easing. They will boost liquidity by allowing banks to swap local government bailout bonds for loans. Note: Local governments act as quasi-corporations in China, developing real estate, etc. Thailand got in the act, cutting their central bank rate today. Spotlight on Fannie and Freddie: The FHFA was appointed conservator of Fannie Mae and Freddie Mac in the wake of the financial crisis and placed annual production limits on multifamily loan production. Those limits are close to being reached already in May/June of this year. Small loans (50 units and under) and affordable projects are exempt from this tally. Fannie and Freddie have raised spreads in recent weeks as they are “putting on the brakes” and slowing production. Who will fill the gap for apartment lending? CMBS and bank lenders are seeing a spike in multifamily loan requests. This is good news for CMBS, as multifamily loans should improve pool quality, execution and therefore loan pricing. ….stay tuned…. David R. Pascale, Jr.
