RCA in the commercial property press:

HUD Dumps Problems

The Columbus Dispatch reports: Despite the costs and risks, industry observers generally agree that selling bad HUD loans makes sense for taxpayers. Some projects will inevitably fail, and HUD is not well-equipped to manage distressed properties, said Cheryl Malloy of the Mortgage Bankers Association. "They've never been good at that."

Selling bad loans has helped the Federal Housing Administration, which insures HUD mortgages, withstand losses such as the Columbus Properties project. But the pressure is building, and the stakes for taxpayers are enormous.

FHA insures $56 billion in "multifamily" apartment loans, as well as $412 billion in single-family mortgages. Borrowers pay into the insurance fund as part of their monthly mortgage payments.

If defaults ever overwhelm the FHA fund, the government would be obligated to cover losses, putting taxpayers on the hook.

In May, FHA announced that it would ask Congress for $800 million to prop up the insurance fund against expected losses.

It would be an unprecedented taxpayer appropriation for the FHA insurance fund, which was created in the 1930s, and industry observers say problems with the single-family market can be an indicator of future problems with multifamily projects.

FHA is required to keep the equivalent of 2 percent of outstanding single-family loans in the insurance fund. As of September, FHA reported having 3 percent set aside -- legally sufficient, but a sharp drop from 6.4 percent a year earlier.

The recent blows to single-family FHA loans naturally raise questions about the apartment-renovation loans and other insured multifamily mortgages.

Mortgage defaults on apartment and industrial buildings among commercial lenders have risen 80 percent in the past six months, according to Reis Inc., of New York, which tracks the commercial real-estate market.

Pete Culliney, research director for Real Capital Analytics, a commercial real-estate research firm in New York, said of HUD: "They're between a rock and hard place. How do you manage the middle and low end of the market when the bottom is falling out?"