So if you are a buyer who went out and bought a property and put floating rate debt on it and bought it at a scary low-cap rate and those operating costs that you underscored have gone up, you’ve got problems because your cost of financing has gone up and also your operating cost has gone up. That’s not a space where Walker & Dunlop has played much. We played there a little bit, but not much. Some of our competitor firms, they have benefited from having floating rate debt and they’re benefiting right now from the cash flows that that our floating rate debt is giving to them. That’s a risk profile of lending that we have not played in. The third thing I would underscore is your point about economic vacancy. There was a letter that was written to FHFA three days ago by a number of democratic senators underscoring the Biden Administration’s request for a Tenant Bill of rights to try and add renter protection.
And after seeing the letter go, I reached out to a number of the senators who were signatories to that letter and I pointed out to them that what they are missing is two things. The first thing, the amount of economic vacancy that is still in the market and that landlords across the country through the pandemic and post pandemic have worked tirelessly with renters to make sure that they could stay in safe and affordable housing. While there are clearly outliers, there are clearly tenants who have not been treated as well as any of us would like. The vast majority of owner operators that we work with have bent over backwards to support their tenants through the pandemic and post pandemic. And so you underscore an issue from an operating standpoint that we as an industry must raise to both the regulator as well as legislators who think that it’s the tenant who has gotten the shorting of the stick and not the owner operator.
The second piece to that point, Steve, is that the agencies right now are very, very focused on making sure that the assets that they lend on are at a standard of quality that makes it so that renters have a safe, affordable and maintained asset. And we have an incredibly strong track record at Walker & Dunlop as it relates to asset maintenance. But there are some situations where we and other lenders have borrowers who for the reasons you just pointed out, are not investing in their assets to keep them up and to make it so that they are safe, affordable and well-maintained assets. And so we as an industry need to step in and make sure that tenants have those types of properties to live in and that those properties that have agency financing on them are maintained according to the loan documents that sit on top of them.
Steven DeLaney: That’s great inside Baseball, Willy. Thanks and good to know about the proposed legislation. Thanks for all your comments this morning.
Willy Walker: Sure.
Operator: [Operator Instructions] We’ll go next to Jay McCanless with Wedbush.
Jay McCanless: Hey, good morning everyone. Thank you for taking my questions. The first one I had Willy, I know you had opined in the past that the GSEs would probably hit their caps this year, but just based on the transactions you see out there, do you think that’s still on the table?
Willy Walker: I don’t think so, Jay. I’d say that, sort of looping back to Steve’s question and now to yours. We saw a significant uptick in activity in sort of May – late April into May when we got into that band that I tried to describe as sort of precisely as I could in my prepared comments. Of cap rates moving up to the high 4s financing cost being between 4.75 and 5.25, and borrowers saying, I’m okay taking 25 to 50 basis points of negative leverage, I’ll go. And so volumes picked up there and that was right around when we did our Q1 call. So we saw an uptick and said, hey, if they keep going at this rate, they could hit their caps. The debt ceiling negotiations then the treasury department stepping in and starting their $1 trillion issuance program of treasury issuances between now and the end of the year to raise capital for the cost of the federal government put a lot of upward pressure on rates, rates started to move out again.
And as I pointed out in my comments, we’ve never seen a market that’s more rate sensitive. So you get 10 to 15 basis points of movement in the tenure that’s pushing out overall coupon rates and people say, you know what, it’s outside of my band on negative leverage; I’m going to pause. So we, the numbers of the numbers that are at 30% of their annual capacity, we as I said are working as closely with Fannie and Freddie to deploy as much of that capital as possible. And I would go back to the point I made to Steve, Jay. If we see some large portfolios both be transacted upon from a sales standpoint or needing financing that could change the numbers materially. But at the current no large portfolios and Fannie and Freddie focusing on profitability and affordability rather than capital deployment, it will be very challenging for them to get to their caps.
