Walker & Dunlop, a major financing firm for the senior housing industry, has a new distinction: the largest servicer for HUD multifamily and health care loans in the country. That’s following the purchase of servicing rights associated with a $3.8 billion portfolio from Oppenheimer Multifamily Housing & Healthcare Financing Inc.
The transaction involves a purchase price of about $45 million, and encompasses more than 480 loans insured by the Department of Housing and Urban Development (HUD), Walker & Dunlop announced Tuesday. HUD insures loans to senior housing companies through its Section 232 program, and roughly 100 of the loans involved in this large transaction are related to senior housing and care, Walker & Dunlop CFO Stephen Theobald told Senior Housing News.
The deal is expected to close June 20, and exact figures are not available until then, he noted.
This is the first transaction of its kind for Walker & Dunlop, and it comes at an opportune time. Recently proposed changes to the Section 232 program likely will make it more accessible and attractive to senior housing borrowers, creating a potential increase in HUD transactions.
“Obviously, getting a portfolio that has 100 properties, plus or minus, gives us access to a client base we may not have touched before, so from that perspective, it gives us the opportunity to meet whatever other financing needs they have,” Theobald said. “With regard to changing our overall approach, [the transaction] doesn’t really impact us, but we do believe that HUD will become a more favorable product than it has been over the past two years. Hopefully we can use the increased customer base in the servicing book to accelerate that from Walker & Dunlop’s perspective.”
Walker & Dunlop is taking steps to make the transition to a new servicer as seamless as possible for borrowers, he said. The firm will be sending welcome letters to borrowers and trying to make phone contact with as many as possible.
In addition to balance inquiries or other questions regarding the loans, another common touchpoint between borrower and servicer would be accessing reserve funds—for example, when the borrower does improvement projects such as repaving the parking lot.
“They would get the work done, contact us, provide the paperwork, and we release the money,” Theobald said. Construction loans are not part of the portfolio being acquired, so construction draws are not something Walker & Dunlop will be handling as a result of this deal, he added.
Borrowers may also be discussing lower interest rates with their new servicer. It’s possible that some of the loans in the Oppenheimer portfolio may be eligible for lower rates through the Interest Rate Reduction (IRR) program, Theobald said. Most of them are fully amortizing 35-year loans; a loan taken out 10 years ago would have been negotiated in a very different interest rate environment than today’s.
“The opportunity may be to lower the interest rate without changing other loan terms,” he said.
While this is the first time that Walker & Dunlop has purchased a servicing portfolio, the company has acquired other firms and taken on servicing as a result. Based on those experiences, Theobald is confident in the process for onboarding the new clients. None has been flagged as specifically challenging, such as having refused to work with Walker & Dunlop in the past.
Overall, the transaction fits into a goal that Walker & Dunlop put in place in 2012, to increase revenues from servicing and non-transaction based fees, according to the press release issued by the firm.
Closing of the transaction is subject to terms that include approval of the Government National Mortgage Association.
Written by Tim Mullaney