Wells Fargo Multifamily Capital expects to grow its business by 20 percent in 2008 and is staffing up with some industry heavyweights in anticipation of the increased production.

In July, the company hired industry veteran Doug Westfall to originate government- sponsored enterprise (GSE) loans. Westfall has a long history with both GSEs—he’s the former director of multifamily affordable housing finance at Freddie Mac and former Southeast regional director for Fannie Mae’s affordable housing operations.

And in June, the company brought in Charles “Hank” Williams to originate Federal Housing Administration (FHA) loans. Williams too has deep roots in the industry and most recently served as head of multifamily housing at the FHA.

The company expects the integration of its diverse products to pace its growth in 2008.

Wells Fargo’s Fannie Mae, Freddie Mac, and FHA lending efforts make up its Multifamily Capital group, which was formed when the bank acquired Reilly Mortgage in August 2006. But the bank’s construction lending and tax-exempt bond capabilities are housed in separate divisions, a reflection of the bank’s evolution as it has grown through acquisitions.

The integration of these complementary product lines is just around the corner. The bank plans to marry its construction lending and tax-exempt bond capabilities with the Multifamily Capital group in 2008, creating a more centralized affordable housing operation.

“The bank is really starting to look at ways to do more business in the affordable area by capitalizing on the strengths of the various real estate lending groups,” said Tom Szydlowski, executive vice president and head of GSE production for Wells Fargo Multifamily Capital and the former president and CEO of Reilly Mortgage. “In the past 90 days, affordable as a growth opportunity has gotten quite a bit of attention within the bank,” he said in mid-December.

Wells Fargo Multifamily Capital now combines Reilly’s Fannie Mae and Freddie Mac permanent financing capabilities with the bank’s construction financing. And the acquisition has broadened Wells Fargo’s geographic reach. Reilly’s GSE lending efforts concentrated on markets east of the Mississippi, and Wells Fargo’s construction lending efforts were focused on the bank’s footprint in Western markets.

The bank is also trying to integrate its direct purchase program for tax-exempt bonds to its permanent loan and construction financing capabilities. The Multifamily Capital group closed its first direct purchase bond deal—for a rehabilitation—in 2007 and is focused on expanding that capacity in 2008.

Like many agency lenders, Wells Fargo Multifamily Capital has seen a rise in business in the second half of 2007, and it hopes to capitalize on the decline of conduit lenders to increase its agency lending market share in 2008. In addition to its FHA, Fannie Mae, and Freddie Mac Program Plus licenses, Wells Fargo has applied to be part of Freddie Mac’s Affordable Housing delegated program, and it hopes to achieve fully delegated status in 2008.

Bridge over troubled waters

For 2008, Szydlowski warned of continuing volatility in the key benchmarks that help lenders to set pricing, such as Treasury bills and the Bond Market Association index.

Ever since the capital markets grew turbulent in mid-2007, the multifamily industry has been in a situation Szydlowski calls “real-time pricing.” When borrowers ask for a quote, even from conventional financing sources like the GSEs, the price they get will rarely stay the same for even a week. “You don’t really know the cost of your debt until you rate-lock your loan,” he said. “Borrowers are taking a lot more risk on spreads today.”

This volatility, plus the possibility of an economic recession, has pushed many lenders to revisit the underwriting guidelines they used before conduit lenders forced the rest of the industry to match the aggressive rates and terms they offered. Now that conduit lenders are no longer major players, a return to more conservative underwriting is likely in 2008. “It wasn’t that long ago that a conventional Fannie Mae or Freddie Mac loan had a 1.25x [debt-service] coverage,” Szydlowski said. “They’re not back at that level yet, but I do think that they’re concerned.”

Despite the volatility in the capital markets, Wells Fargo Multifamily Capital expects to increase its volume aggressively in 2008. And the agency lending platforms of the former Reilly—the first DUS lender and one of the first FHA lenders—will help offer stability in a troubled market.