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Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
1
JOIN. ENGAGE. LEAD.
By RMA’s Credit Risk Council
TIPS ON HOW TO SURVIVE
A MULTI-FAMILY HOUSING
CRISIS7
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
2
JOIN. ENGAGE. LEAD.
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.
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
3
JOIN. ENGAGE. LEAD.
• 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
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
4
JOIN. ENGAGE. LEAD.
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.
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
5
JOIN. ENGAGE. LEAD.
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
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
6
JOIN. ENGAGE. LEAD.
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.
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
7
JOIN. ENGAGE. LEAD.
2. IDENTIFY YOUR RISK APPETITE
Identify your risk appetite for multi-family
housing.
Establish and enforce
underwriting policies that
match it.
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
8
JOIN. ENGAGE. LEAD.
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.
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
9
JOIN. ENGAGE. LEAD.
4. MONITOR YOUR GEOGRAPHIC MARKET
Continually monitor your
geographic market, including
its submarkets, for possible red
flags in this sector.
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
10
JOIN. ENGAGE. LEAD.
5. CONTEXT MATTERS
Routinely
track your
multi-family
housing
portfolio to:
• Uncover troubling trends
early.
• Adjust underwriting policies.
• Adjust portfolio management
practices accordingly.
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
11
JOIN. ENGAGE. LEAD.
6. KNOW YOUR BORROWERS
Know your borrowers; focus on
lower risk developers with good
cash flow and liquidity as much
as possible.
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
12
JOIN. ENGAGE. LEAD.
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.
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
13
JOIN. ENGAGE. LEAD.
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
Enterprise Risk · Credit Risk · Market Risk · Operational Risk · Regulatory Compliance · Securities Lending
14
JOIN. ENGAGE. LEAD.
SHARE THIS PRESENTATION
Visit http://www.rmahq.org for information on risk management
Visit our blog at http://rmablog.rmahq.org/
RMA is a member-driven professional association whose sole purpose is to
advance sound risk principles in the financial services industry.
RMA helps its members use sound risk principles to improve institutional
performance and financial stability, and enhance the risk competency of
individuals through information, education, peer sharing, and networking.
Become a member today.