Fannie Mae & Freddie Mac implemented escrow reserve requirements, banks tightened their belts, and pricing shifted significantly.

Fannie Mae and Freddie Mac small balance loans (under $6M and $7.5M, respectively) now require twelve to eighteen months of reserves for principal & interest, taxes and insurance, and capital reserves. For a typical $5 million loan in Washington State, the total reserve would be in the $300,000-$400,000 range, or 6%-8% of the loan amount. For larger deals, reserve requirements vary by tier. Tier 4 deals (below 55% LTV and above 1.55 debt service coverage) generally don’t require reserves.

Banks and credit unions tightened their belts this week, although we have not seen blanket P&I reserve requirements in this sector yet. We expect most commercial spaces in mixed use properties to be underwritten as if fully vacant in the near-term. More lenders dropped out of the market this week to focus solely on their existing pipeline and existing customers.

Interest rates shifted significantly this week. Most bank lenders in our market are pricing in the 4% range, roughly 0.50% to 1.00% higher than mid-March. In contrast, pricing improved for Fannie Mae, Freddie Mac, and some life insurance companies. For high quality deals, we’re seeing quotes in the low to mid 3% range again in some cases.

FED UPDATE: The Federal Reserve increased the size of its balance sheet by $1.5 trillion in March to $5.8 trillion. Among other things, that money is going toward mortgage-backed securities and private sector bonds. Average AAA bond rates, an important benchmark for life insurance companies, spiked to around 4% in mid-March and fell below 3% again this week, which is consistent with where bonds were back in January and February.

Bottom Line

There are favorable terms available for conservative refinances, but high-leverage and cash-out requests are a challenge.

For purchases requiring conventional debt financing, expect 90-day+ turn times and conservative terms. Proceed with caution until you have a final loan commitment in hand.

If you need to refinance or obtain purchase financing right now, we can help find the best options amidst the chaos. If you have the time to take a wait-and-see approach, we can work with you in the coming weeks to help identify the right time to move.

Contact: Alex Mundy | 206.747.4725 |