When Mike McRoberts left Freddie Mac to join Prudential Mortgage Capital last year, it left the company without a head of sales and production.
It also left the multifamily industry fretting that Fannie Mae and Freddie Mac were rapidly losing talent to the private sector, stirring fears that the government-sponsored enterprises (GSEs) would just become another HUD—another slow, bureaucratic government agency.
But Freddie’s leadership void was filled with style when John Cannon joined the company in February. Cannon, a 27-year veteran of the mortgage origination game, led Berkadia—the latest incarnation of Capmark, and its predecessor, GMAC—to become one of the top producers of Freddie Mac loans in the nation.
Berkadia also offers Fannie Mae loans, but the company often did more Freddie business. “I’ve always been accused of being a Freddie guy,” says Cannon, “and now I really am.”
Apartment Finance Today recently sat down with Cannon to discuss why he came to Freddie, what the company hopes to achieve, and the servicing of loans in the CME program.
AFT: So, how did Freddie Mac sell you on this position? You’re joining a company that’s in a precarious state right now.
Cannon: I wouldn’t have come if I didn’t think the future was anything but bright. When you look at the multifamily division, we did everything we were supposed to do: We funded a lot of loans that had a very large affordable component, we provided liquidity day in and day out, and not the least important is the fact that we made money. There’s no reason to believe we couldn’t’ continue to do that in the future.
AFT: How do you plan to put your mark on the multifamily division when you’re operating under the constraints of conservatorship where innovation seems to be discouraged?
Cannon: Clearly, I have ideas on products and processes that I would love to introduce and were it not for the constraints we’re under right now, I would be pushing forward on those things. But I do look toward the future because I think you have to. You have to behave as if we were a private company because that’s what’s expected of you. We’re here to make money, to do volume, to satisfy customers, to provide liquidity and affordable housing units, and that has to be our North Star every day we come in to the office.
And the moment we start behaving like we’re just a government agency, we’ve lost, and we’re going to lose a lot of good people if we start doing that. I certainly didn’t join Freddie Mac to become another HUD. We strive to be able to be worthy of becoming private again, of attracting private capital and that’s an admirable goal.
AFT: A year ago, you said the GSEs were backing away from luxury, Class-A deals. Is that the case, now that you’re on the other side?
Cannon: I would say no. Right now we’re doing Class A, Class B, Class C, good quality investments where we think we can make some money, where we think we can provide liquidity while still fulfilling our affordable goals. I’m based in Manhattan, and we’re doing some really interesting creative stuff here that is absolutely Class A real estate.
So, will we back away from the A business? I don’t think so. Will we dominate the A business in the future? I hope not. I hope more liquidity comes back into the market because that will be a good thing for everybody, and I don’t think our market share is sustainable. It’s not healthy for the market to have two dominate providers of liquidity.
AFT: At the recent Apartment Finance Today Conference, it was mentioned that the CME program is starting to have some problems with servicing: how would you respond?
Cannon: I know there was an article, but I think it was blown out of proportion. Listen, anytime somebody doesn’t get an assumption approved, you point fingers, but we think we’re different than a CMBS lender. Keep in mind, we guarantee the triple A securities for the life of the loan—so we’re involved for the life of the deal, and we fully hold our servicers up to certain standards and expect them to abide by those standards, whether it’s a portfolio loan or a securitized loan. It’s wildly different than a conduit lender that just sells 100 percent and walks away.
Keep in mind though, if I quote and win a deal I am the smartest lender in the world. And if I quote and lose a deal, I’m the stupidest guy that ever walked the face of this earth. And it’s all in the eye of the beholder. So somebody that didn’t get their assumption approved is going to say you guys were being capricious and arbitrary. But no, we really are not.
Servicing is exceptionally important to us because that is our business. If we can’t keep our customers happy for the life of the loan, they will not be our customers the next time around. Let me tell you something: That article caught a lot of people’s attention. But it really forced us to say, are we really doing the right things, can we do something better?
AFT: How do you see the debt market playing out this year? Will the GSEs have 60 percent market share again?
Cannon: It could be. I’m not sure the market is as liquid as it needs to be, certainly the conduits are coming out, every now and then you hear of them picking off a deal. But they’re still not up and running by any stretch of the imagination. And the life companies are formidable competitors, but often times they are not in all the markets all the time.
We’re starting off the year so strong because the 10-year treasury, as we speak, is 180 (basis points). We’re talking about rates below 4 percent, generally speaking, and that will create some acquisition opportunities, and it will also move some people to do discretionary refinances. So, we think volume will be up because of those things.