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By RMA’s Credit Risk Council

TIPS ON HOW TO SURVIVE

A MULTI-FAMILY HOUSING

CRISIS7

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OUTSTANDING MULTI-FAMILY DEBT BY

LENDER TYPE

Depository institutions

33%

Life insurance companies

6%

Federal and realted agencies

25%

Mortgage pools or

trusts25%

Individuals and others

11%

Source: Federal Reserve Q2 2015

• Banks hold as

much as 33% of the

overall multi-family

debt in this country.

• Just a few years

ago, Freddie Mac

and Fannie Mae

were the dominant

lenders in this

category.

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• Demand for new apartment

projects remains strong in many

geographic areas.

• Participate in this expansion

using sound risk management

principles.

Sound risk

management

principles

are

essential.

MULTI-FAMILY LENDING

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MULTI-FAMILY LENDING SLOWDOWN

However… the law of supply and

demand tells us that, eventually, this

brisk pace will slow.

To prepare for the slower pace, you’ll

need to proactively manage your multi-

family loan portfolio risks.

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1. Maintain strong lending standards

and concentration limits.

2. Identify your risk appetite.

3. Assess current market rents and

vacancy rates.

4. Monitor your geographic market.

5. Track your portfolio.

6. Know your borrowers.

7. Use a 3-pronged underwriting

approach.

Measures of

strong risk

management.

7 MEASURES YOU CAN TAKE TO SURVIVE

A MULTI-FAMILY HOUSING CRISES

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1. MAINTAIN STRONG LENDING STANDARDS

AND CONCENTRATION LIMITS

The number one thing that you

can do to avoid a repeat of the

2008 single-family housing

bubble within multi-family

housing is to maintain strong

lending standards and

concentration limits.

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2. IDENTIFY YOUR RISK APPETITE

Identify your risk appetite for multi-family

housing.

Establish and enforce

underwriting policies that

match it.

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3. ASSESS CURRENT MARKET RENTS AND

VACANCY RATES

Critical to

multi-family

lending:

• Assessment of loan-to-value

(LTV).

• Accurate assessment of

current market rents.

• Accurate assessment of

vacancy rates.

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4. MONITOR YOUR GEOGRAPHIC MARKET

Continually monitor your

geographic market, including

its submarkets, for possible red

flags in this sector.

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5. CONTEXT MATTERS

Routinely

track your

multi-family

housing

portfolio to:

• Uncover troubling trends

early.

• Adjust underwriting policies.

• Adjust portfolio management

practices accordingly.

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6. KNOW YOUR BORROWERS

Know your borrowers; focus on

lower risk developers with good

cash flow and liquidity as much

as possible.

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7. USE A 3-PRONGED UNDERWRITING

APPROACH

With interest and CAP rates low, cautiously

underwrite multi-family properties using a

three-pronged approach that includes:

• Conservative underwriting and cap rates.

• Debt yield with loan to value (LTV).

• Debt service coverage.

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The Credit Risk Council supports

professionals who are responsible for

establishing, maintaining, or carrying

out credit risk management policies.

The council focuses on funded and

off-balance sheet risk management,

including capital markets activity, and

other forms of credit intermediation

and risk mitigation.

About RMA’s Credit Risk Council

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