Overall, Treasuries have been volatile but on a steady descent over the last couple of weeks, brought on by international crises as well as lackluster economic data from NFP, though GDP was strong. Generally, spreads have held steady, except for GNMA rates (HUD) which have widened, stubbornly maintaining rate levels over the last several months. As a matter of fact, as of this date, GNMA spreads are at their peak for the year, and approximately 40 basis points higher from early summer lows.

With the widening of GNMA spreads, the FNMA and Freddie Mac 10-Year rates are very competitive to the HUD rate inclusive of MIP. With MIP, HUD rates are in the 4.35%, which is consistent with FNMA higher leverage quotes.

Here is an illustration of GNMA spreads (prior to MIP) over the last 8 months, which CANNOT BE FOUND ON ANY OTHER PUBLICATION THAT I KNOW OF:

The only explanation for this is either quarter end positioning that kept rates up (less demand) and/or investors not buying into the recent drop in Treasuries. We feel spread will definitely come down, particularly if the 10 Year Treasury doesn’t spike back up. We need to mention though that the Fed has made it clear to begin a more restrictive monetary policy over the next two to three years…i.e., short term rates are going up. However, recent Fed minutes are dovish regarding this, with concern about the dollar’s appreciation due to further slowing economy in Europe. Fed Minutes: Fed Minutes: “Some participants expressed concern that the persistent shortfall of economic growth and inflation in the euro area could lead to a further appreciation of the dollar and have adverse effects on the U.S. external sector.” This is obviously a bit on the dovish side as it suggests limited inflation and a potential negative for export and global growth. This has supported the front-end of the Treasury market and led to a rally in domestic equities.

Let’s take a look at the best rates and terms we are seeing in the marketplace:

Here are the best terms in the commercial real estate financing market today.

* 4.15 % fixed for 10 Years. Low leverage (Source is Life Company, Fannie Mae and Freddie Mac with LTV ratio at 65%)

* 3.75% fixed rate loan for 35 Years prior to .60% MIP (Source is Red Mortgage Capital, GNMA/HUD)

* Conduit Pricing is 175 BP to 200 BP over 10 Year Treasury Swap, pricing 10-year money at 4.25 to 4.50% fixed rate loan.

* 6-month swaption at 2.65% cap on 10 Year Treasury costs approximately .25% for forward delivery.

Look for banks to keep aggressing bidding on deals. The climate in banking is getting back to about 2004, just before the real estate recession. With that said, pricing will decline over Libor, best rates for best customers are floating at only 200 to 235 over Libor on real estate deals, which is well below Prime.

I do recall a happy customer at Libor + 3 in 2004, then…… As Forest Gump would say, “just like that, it was over”.

The bottom line on bank funding – be cautious of floating rate deals as the Fed has spoken on the direction of short-term rates AND be cautious of loans that require guarantees with 3-to-5-year maturity dates. Many banks that seek your loan business today, could in fact have asked you to leave about 6 years ago!!!

Trillium Capital Resources facilitates financing for all property types, with loan execution from our correspondent lenders. We are recognized as an alliance partner with Red Mortgage Capital. We will not be OUTBID or OUT SERVICED on any financing deal and will always be competitive with ANY lender!