Q&A with Agency Lender Greystone Servicing Corporation, Inc.
Tell us about the Greystone group and its affiliated companies.
Greystone & Co., Inc. together with its affiliated companies is a financial services and private investment company with locations across the country. Greystone Servicing Corporation, Inc. originates complex financing for all types of multifamily and healthcare properties. The majority of the financing is arranged through the Fannie Mae Delegated Underwriter and Servicer (“DUS”) and FHA Multifamily Accelerated Processing (“MAP”) programs. Greystone Servicing Corporation, Inc. funded over $387 Million in FHA insured debt in 2009, ranking second in overall volume of FHA commitments received and expects FHA insured volume to double in 2010. Through its Fannie Mae platform Greystone Servicing Corporation, Inc., one of the top six Fannie Mae DUS lenders, closed and purchased loans in 2009 with an aggregate principal balance of $1.1 Billion, a substantial increase in market share despite last year’s challenging economic environment. Focusing on strategies for solid future growth, not only short-term survival, Greystone has remained stable as a lender in the midst of distressed capital markets. Greystone’s servicing portfolio is in excess of $7.8 billion.
Greystone offers a broad variety of financing solutions—both taxable and tax-exempt—for multifamily projects and healthcare facilities. With extensive resources devoted to special servicing and debt restructuring, Greystone has been instrumental in repositioning several facilities and has completed the most FHA default restructurings in the industry. Greystone’s capital markets expertise enables us to deliver competitive pricing and superior execution across our entire portfolio of products.
Our national team of professionals has built strong, collaborative relationships with Fannie Mae and HUD. For the past nine years Greystone has ranked in the top ten FHA lenders in the country, experience that enables us to assist clients in capturing investment opportunities and avoiding costly missteps and delays.
Greystone Servicing Corporation offers Fannie Mae DUS loans, FHA loans, small balance loans and bond credit enhancements – did we miss anything?
Those are the primary products we offer.
Let’s focus on federal agency loans as our readers have expressed interest. How does HUD’s Federal Housing Administration (FHA) loan program work at Greystone?
Greystone Servicing Corporation, Inc. originates and underwrites FHA mortgages as a licensed MAP and LEAN lender. We complete a detailed pre-review of each potential FHA transaction prior to issuing an application in order to honestly communicate with the Borrower whether they would benefit from this type of execution. FHA-insured loans provide higher leverage at lower interest rates than other mortgage options, because they carry the full faith and credit guaranty of the United States government, making them one of the safest investments in the market. FHA-insured loans are also 100% non-recourse to the Borrower. However, because HUD must review each transaction, FHA-insured loans generally take longer to close than traditional bank debt.
Once we have provided a quote to the Borrower, based on our initial review, the Borrower executes an engagement letter authorizing Greystone to proceed with underwriting. The Borrower also provides funds at this time for third party reports. The underwriter and processor maintain constant communication with the Borrower during underwriting. The FHA underwriter assigned to each transaction will be the most critical person involved, as the underwriter will present the Borrower’s case to HUD. We recommend that Borrower’s investigate underwriting experience when choosing an FHA lender. Ask how many approved FHA underwriters they employ. Question their underwriters’ longevity with the firm and with past lenders. Inquire about turnover in the FHA underwriting department as well as specific duties of the underwriters. These pertinent questions will help Borrowers make an informed lender choice.
Once the underwriting package is prepared, the timing of which depends heavily on the responsiveness of the Borrower, Greystone submits the package to HUD for review. HUD review times vary depending on the transaction type. Refinance and acquisition financing will be reviewed within 60 days. After HUD issues a commitment to insure the loan, Greystone locks the interest rate and drafts closing documents. Closing generally takes place within 30 days of rate lock.
What are the MAP and LEAN programs within HUD?
MAP is an acronym that stands for Multifamily Accelerated Processing. Prior to MAP, HUD local offices underwrote each transaction themselves, resulting in processing times of one to two years. HUD implemented the MAP program in 2001 allowing approved lenders to complete the burden of due diligence and underwriting, and instituting maximum HUD review times to accelerate FHA-insured loans. Since that time the FHA portfolio has steadily expanded. This year, because many other debt options have disappeared from the market, FHA-insured overall production is three times 2009 volume, four times 2008 volume.
In 2008, FHA introduced LEAN programs in order to better review and process applications for healthcare facilities. Prior to 2008 healthcare and multifamily properties were both processed under MAP guidelines through local HUD offices. Now applications submitted through LEAN are reviewed and approved by the Office of Insured Healthcare Facilities.
Specific loan to value maximums, debt service cover minimums, and other program parameters for various types of FHA-insured mortgages can be downloaded from Greystone’s website http://www.greyco.com/TermSheets.aspx.
Please provide an example of an FHA loan funded in 2010.
Greystone funds simple and complex transactions of varying sizes. Below are examples of two transactions.
$18.4 million refinance of a 260-unit multifamily apartment complex in Pompano Beach, Florida.
The Borrower originally came to Greystone for acquisition financing, but the seller’s timeframe did not allow for a HUD execution. A bridge loan facilitated a quick closing while Greystone underwrote the permanent mortgage. Less than a week after the purchase, Greystone submitted the mortgage insurance application to HUD. In order to take advantage of low rates, Greystone arranged to lock the permanent interest rate prior to receiving HUD’s firm commitment, ensuring that the Borrower would not be subject to market fluctuations. The refinance closed less than 5 months after the property was purchased, replacing short-term bridge financing with an FHA-insured permanent mortgage. In addition to refinancing the bridge loan, the FHA mortgage funded over $60,000 for repairs to the property and established a replacement reserve of $292,500.
$2.25 million rehabilitation financing for a 28-unit affordable housing apartment complex in Detroit, Michigan.
Originally constructed circa 1898 as a nursing dormitory, the conversion of this historic landmark building into multifamily rental apartments was a collaborative effort involving local, state and federal support. Greystone arranged FHA-insured financing in conjunction with Federal and State Historic Tax Credits, Michigan State Brownfield Tax Credits and funds secured by a 12 year tax abatement granted by the City of Detroit. Additional local endorsements came from the University Cultural Center Association, an organization which promotes projects to improve streetscape and commercial redevelopment along Woodward Avenue in the midtown neighborhood of Detroit, as well as the Detroit Investment Fund, which provided bridge financing during construction and lease up. After the rehabilitation is complete, the loan balance will transition automatically into a 40-year fully amortizing mortgage with one low fixed interest rate throughout the construction period and permanent mortgage.
Additional examples can be found on our website http://www.greyco.com/News.aspx.
How does your Fannie Mae DUS loan program work?
Greystone Servicing Corporation, Inc. originates and underwrites FNMA mortgages as a DUS Lender (Delegated Underwriter and Servicer). We complete an initial sizing of each potential DUS transaction to estimate the achievable loan amount prior to issuing a loan application. After an executed loan application is received, underwriting commences and third party reports are ordered.
Typically the entire process is controlled within Greystone. Fannie Mae does not need to review most transactions. Third party reports, including appraisal, engineering and environmental reports, generally take 3-4 weeks to complete. A Greystone underwriter prepares a narrative and underwriting package for loan committee review, as the third party reports are finalized. An internal Greystone committee reviews and approves each DUS transaction, issuing a commitment after committee approval. Early rate lock is an option, though rate lock usually occurs after commitment followed by closing a week later. Typically loans close within 6-8 weeks of the application being signed.
Fannie Mae DUS loans are non-recourse, though underwriting examines both property strength and strength of the sponsor. Fannie Mae loans are intended for stabilized projects that have achieved at least 85% occupancy for 90 days prior to application.
In certain pre-review situations, a Fannie Mae review is required prior to underwriting. Generally, this review occurs after Greystone has received the executed application and submitted a preliminary package, which takes about 1 week to assemble. Fannie Mae responds generally within another week. Greystone typically proceeds with standard processing while waiting for Fannie Mae’s response, ordering third party reports and underwriting in order to maintain efficient timing.
Greystone Servicing Corporation, Inc is also a Fannie Mae Seniors, Fannie Mae Affordable Housing and Fannie Mae Small Balance lender.
Please provide an example of a DUS loan funded in 2010.
$25.9 million Fannie Mae DUS loan for a 527-unit multifamily apartment complex in Newport News, VA.
This loan was rate locked thru the Fannie Mae Early Rate Lock program within 2 weeks of Application execution. Constructed in two phases, both phases of the property provided the security for this moderate leverage (65% LTV) loan with a 10 year term, 30 year amortization. Originated through a correspondent relationship, the transaction was the sixth DUS loan closed by Greystone Servicing Corporation, Inc for this client. Greystone will be the servicer of the loan.
Tell us about your small balance loans, particularly the Fannie Mae Small Mortgage program.
Greystone Servicing Corporation, Inc. is the largest Fannie Mae Small Balance program lender in the country. Loans range from $750,000 to $3,000,000 in most MSAs, up to $5,000,000 in designated large MSAs. It is a streamlined program with modified underwriting and reduced fees. Expenses are about half of the costs associated with a normal DUS loan, primarily because of the reduced scope of third party reports. Environmental and engineering analysis can be combined in one report. The appraisal is limited in scope, compared to the DUS appraisal. The $8,500 application fee for Fannie Mae Small Balance transactions includes lender legal costs.
The timing is also streamlined, approximately 6 weeks from application to closing. Like the Fannie Mae DUS loan, the entire process is Greystone controlled. Each transaction is reviewed by an internal loan committee. Unlike larger DUS loans, Fannie Mae Small Balance loans are typically full recourse, except for lower leverage transactions. Occupancy requirements for Small Balance transactions are slightly more stringent. Eligible properties must have achieved 90% for 90 days prior to application.
What challenges and changes in agency financing are you seeing?
The environment has been and will remain challenging. During 2009, acquisition financing was substantially down industry wide. Financing for new development became extremely scarce and in the affordable world, tax credit business and 4% bond business disappeared. Over the last 3 years Fannie Mae has tightened credit parameters and curtailed lending in many markets; this tightening has leveled off over the last 6 months and all indications are that the credit environment within Fannie Mae is now stable. FHA has recently implemented new underwriting guidelines designed to mitigate risk as the FHA portfolio expands exponentially.
Despite these challenges, agency debt remains solid because of the backing of the U.S. government. FHA underwriting has always been concerned with long term stability rather than short-term profits, which has made it one of the only extant options for developers today.
Greystone’s experience, commitment to quality work and excellent customer service has enabled us to remain a leader in the marketplace. In turbulent times, it is most important to properly manage client expectations and to assist them in managing distressed and/or maturing debt. Greystone has extensive resources devoted to special servicing and debt restructuring and has been able to provide valuable knowledge and insight to clients.
What are allowable broker fees for agency loans?
Broker fees vary by transaction. On FHA-insured loans, broker fees are allowed only within the context of a correspondent agreement between Greystone and the Broker. The Broker may not charge the Borrower a fee outside of this arrangement.
Thanks so much for the interview. Who should borrowers and brokers contact to discuss the various loans?
Please contact an originator through one of our offices http://www.greyco.com/CompanyServicingCorporation.aspx.
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