Magazine article Mortgage Banking

Analysts Predict More Interest-Rate Risks

Magazine article Mortgage Banking

Analysts Predict More Interest-Rate Risks

Article excerpt

Kieran Quinn, CMB, vice chairman in the Atlanta office of Walker & Dunlop, forecasts short-term interest rates rising 200 basis points to 400 basis points (bps) in the next 12 to 24 months.

"I do not think property fundamentals will improve anywhere near enough to offset that rise in interest rates," Quinn, a former chairman of the Mortgage Bankers Association, said in a recent webinar on capital markets. "I would encourage people that own properties to come up now, be realistic about the improvements you are going to get in rent levels and try to lock in your fixed rates today, because 6 percent, 6.5 percent--those are unbelievable all-time interest rates."

Kevin Donahue, senior vice president of special servicing at PNC/Midland Loan Services, Overland Park, Kansas, said industry participants predicate a "go-forward strategy" on originations, believing that the Federal Reserve will keep targeted interest rates at or near zero.

"I think that is highly unlikely," Donahue said. "There is significant interest-rate risk."

Donahue said rising default volume will not cause another financial crisis but force "banks, special servicers and others to start clearing product--especially the lesser-quality product," which they do not believe will recover in a short to intermediate time frame.

"The volume pressure will just create transaction volume through various outlets ... and resolution strategies," Donahue said.

Quinn, however, does not envision another Resolution Trust Corporation (RTC), which resulted in a fire sale of product in the early 199os after the savings-and-loan (S&L) crisis. Quinn said online auctions, particularly for lesser-quality product, will likely be today's sales vehicle.

"The special servicers and the banks have a different vehicle today, which is the loan auction. …

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