Lending Advice
by Various Authors
Q. We paid for an appraisal up front in preparation for refinancing one of our buildings. Afterward, we found a lender with a better rate. Is the recent appraisal transferable?
A. Generally, yes. Most lenders have appraisals prepared by third-party
appraisers. Although the appraisal has to be prepared for and addressed
to the original lender, the borrower pays for it. While a lender
might not want to allow an appraiser to readdress an appraisal,
the industry practice is to allow it. The appraiser might charge
a small fee for the service, and you would have to make sure that
the new lender would accept the appraisal. Some lenders have appraisers
on staff, and in those cases the borrower would not be able to
transfer the appraisal.
– Richard G. Thornton
Q. What does your crystal ball say about what the Fed will do in 2006?
A. My Fed crystal ball seems stuck on the most significant news these days, which is that Chairman Alan Greenspan will likely be handing the reigns to Ben Bernanke very soon. So when I wanted something more than the obvious, I went to the Magic 8-Ball and asked if interest rates will continue to rise in 2006. After pleading with me to “Concentrate and Ask Again,” the 8-Ball pronounced, “Signs Point to Yes.”
Somehow the 8-Ball always seems to read my mind (which I guess is what makes it “magic”). Nobody can be certain, especially given the pending change in guard at the Fed, but right now the signs do point to yes. The minutes from the November and December Fed meetings show that policy makers are still concerned about inflation risks in 2006, primarily due to high energy costs. Although prices for gasoline have retreated from their highs recently, oil is still approximately 20% higher than it was a year ago. Furthermore, recent forecasts for a cold winter in the Northeast are pushing prices closer to their August highs. (The forecasts have also reaffirmed my decision to leave New York for San Francisco, but we’ll save that for another story.)
I still believe that much of 2006 will be dictated by how the Southeast continues to recover from the devastating hurricanes of 2005. Some say that the pure damage to the affected areas and the ensuing lack of production will help to keep the economy from boiling over. But I tend to agree with the Fed, which recently stated that disruptions “were likely to be limited and temporary” and that the recovery and rebuilding process will actually be a positive stimulus to the national economy.
The combination of increased energy prices and continued growth through rebuilding has rekindled inflation fears once again. If Bernanke follows Greenspan’s policies as closely as most people think he will, the Fed will aggressively act to curb inflation before it grows. Raising interest rates at a “measured” pace has been the Fed’s weapon of choice in this battle. The numbers support this strategy; markets already reflect anticipated quarter-point increases in early 2006. Nobody can anticipate when the increases will stop, but no matter how you look at it, it appears nearly certain that rates will be higher than in 2005.
Last, while keeping your eyes on the new Fed Chairman in 2006, don’t lose sight of San Francisco’s own Fed District President. Janet Yellen has been very vocal (as her name would imply), giving 15 official speeches during her 17 months in this position and often making headlines in top business journals. Many observers point to Yellen as a potential successor to the next chairman, especially if a Democrat replaces President Bush in 2008. (Yellen was a member of the Clinton administration.) Yellen is one of five presidents with a vote on the Federal Open Market Committee next year, and she will be very influential, particularly if Bernanke has a less public voice than Greenspan has had. By the way, one of Yellen’s favorite topics is inflation risk due to rising energy prices.
So what does this mean for you? Well, I’m
still searching for the Magic 8-Ball that tells me if cap rates
will rise or if spreads will compress. But for now, when I ask
if you should be locking in today’s historically low rates, the
8-Ball is correct with an emphatic, “Most Definitely.”
– Mark Levine
The opinions expressed in this article are those of the author and do not necessarily reflect the viewpoint of SFAA or the San Francisco Apartment Magazine. Consult the advice of a lending professional for any specific problem. Richard G. Thornton is with Reilly Mortgage Group, 925-287-0764. Mark Levine is with ARCS Commercial Mortgage Co., 415-981-9700 x 224. Copyright © 2006 by the San Francisco Apartment Magazine. All rights reserved.