The Real Deal New York

NYC reacts to Fannie, Freddie crisis

July 15, 2008 04:58PM
By Adam Pincus

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The uncertain future of mortgage giants Fannie Mae and Freddie Mac has left New York City real estate professionals thinking that it’s going to be a long summer.

However, those interviewed also said they expected the federal government to ultimately save the private corporations because they were too big to be allowed to fail.

New York City brokers have been trying to understand the impact of the news Sunday that the U.S. Treasury Department and Federal Reserve planned to prop up the battered companies, weakened by massive losses from mortgage defaults and rapidly declining investor confidence.

Fannie Mae and Freddie Mac not only buy mortgages from the single-family housing market, but the government-backed corporations also provide loans for multi-family purchases through a network of large banks.

Timour Shafran, a multi-family real estate associate broker at Capin and Associates, said he had seen buyers pull back over the past week, anticipating greater opportunities in the fall.

“Right now people with cash are king,” he said. “They are starting to feel there will be a better opportunity six months from now.”

Patrick Hanlon, principal with financiers Ackman-Ziff Real Estate Group, said his company was moving ahead with a nationwide multi-family portfolio deal worth more than $100 million, which would be financed by Fannie Mae or Freddie Mac through an intermediate bank.

He said his company debated whether to proceed or wait a week, but with the advice from the bankers to move ahead, they are proceeding.

“Send us your deals,” he said the bankers told them. “That is today’s conversation. What we are being told is that it is business as usual. We don’t know what this means, but we think everything will be fine, but who knows.”

He said he was confident the federal government would prop up the two entities.

“I don’t think anyone thinks they would disappear because they are too important,” he said.

The share prices for both Fannie and Freddie continued to plummet today, as each has lost about half its value since the start of last week. Also today, Moody’s Investor Service cut their bank financial strength ratings and prominent hedge fund manager William Ackman said today he would bet against both companies’ stocks.

U.S. Treasury Secretary Henry Paulson said today that the government would only rescue Fannie and Freddie if needed, as Republicans in Congress voiced skepticism.

Steven Knobel, president of residential real estate appraisal firm Mitchell, Maxwell and Jackson, said the impact of the turmoil has been lighter in Manhattan, where there were fewer loans bought by the two mortgage giants.

But, he added, “It doesn’t help that Wall Street is rattled. People don’t buy things when they are nervous.”

David Ezyenberg, president of the boutique investment banking firm Prodigious Capital Group, said the market turbulence had driven his deal volume down about 80 percent since 2007.

He saw the cost of borrowing has increased as the publicly traded companies have been considered a greater risk by the capital markets.

“The price is based on the cost of their funds,” and as their bond rates rise, the end-user’s borrowing rate rises,” he said.

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