The chart above represents the 10-year Treasury for the last 90 days. The corona virus has essentially created a serious shock to all markets. The reality is at it relates to commercial real estate lending rates, generally have floors. Only HUD loans (GNMA SECURITIES) and Freddie Mac have no published ‘floor” but the investors buying GNMA REMICS will definitely require minimum yields like they always do. These yields are just not published. Freddie Mac essentially works the same way, and their spreads will widen as well.
HUD EXAMPLE OF FLOORS: Trillium procured financing for a client at 2.48% in July 2012. At the time the 10 year was 1.52%, resulting in an effective spread of 96 basis points. Today the 10 year is right at 1%. There is no HUD money available at 1.96%. Today the rate would be 2.80% or a spread of 1.80%. The HUD floor range in the market today.
AGENCY FLOORS:
FNMA: 10 Year Treasury index floor for 10 years is 1.30. Spreads are wide over 230 bps
FREDDIE MAC: Floor is established at quote less 15 bps, however their spreads are wide as well, so the floor is market driven.
INSURANCE: Floors are generally 3.20% and up for moderate leverage immediate funding, 10 years or more.
SUMMARY
Regardless of what the 10 year does during these turbulent times, commercial real estate mortgage rates are generally in the 3.20% range to upper 3%, depending on LTV ratio, affordability and loan size. HUD is below 3 BUT MIP adds an extra cost ranging from .25 to .65. A7 loans to pay off 5 points would price out at 3.15% as of today.
Now is seriously a great time for financing properties, whether or not you do it with Trillium or somewhere else.
Let us know if we can help!
Scott