Subprime Loans Debaucle - Posted by ttime

Posted by ttime on May 09, 2007 at 17:24:34:


Thanks for the reply. I was preparing some documents for a proposal to purchase out of town property, so thought I better find out the latest status from the experts on this site. Thanks again for your time.

Subprime Loans Debaucle - Posted by ttime

Posted by ttime on May 06, 2007 at 07:31:11:


Any insight on the effect of the subprime loan losses realised by leading lending institutions on residential/commercial loans. Have they made changes to their loan requirements? Has the property pricing structure changed. I know residential markets are affected adversely. Thanks for your time and your knowledge and expertise in this complicated business.


Re: Subprime Loans Debacle - Posted by ray@lcorn

Posted by ray@lcorn on May 10, 2007 at 10:18:29:


In my view the subprime problems are much ado about not much. Yes there were loans that shouldn’t have been made, and yes there will be an increase in foreclosures, but in the big picture it is a small sliver of the total mortgage universe and will not cause a systemic meltdown. The market will take care of the problems as long as the politicians stay out of it.

As to the effect on commercial lending?nada. If anything, the elimination of the subprime investment vehicles increases capital availability in other sectors.

As Patrick said below, there is a little more scrutiny of deals at the securities investment level, but no appreciable changes in loan underwriting. Spreads (securitized loans are priced as a “spread” over T-bill rates) are holding steady and competition is stiff among lenders for loans.

Anecdotal example: I got a quote yesterday on a small (~$2mm) unanchored retail deal at 120bps over the 10-yr T-bill “on-the-run rate” (a little higher than the spot rate on Bloomberg), which places the rate just below 6%, and the broker stressed that it could be negotiated downward for a clean deal. This time last year I got a similar deal done at 5.55%, so not much has changed.


p.s. My comments above are not to say the subprime mess won’t have any effect. It will, and in ways not many realize. In addition to the obvious increased housing supply from foreclosures, demand will be suppressed going forward. Here’s why: the first-time buyers that created the record home sale numbers of 2004-2006 would not have qualified under normal conditions until their incomes (and credit) supported the purchase. So the market essentially borrowed those first-time buyers from the future years, and it will take some time for the pipeline to refill.

Re: Subprime Loans Debaucle - Posted by Patrick S. Lawson

Posted by Patrick S. Lawson on May 08, 2007 at 10:30:05:

The secondary market (wall street investors) are getting a little testy in the CMBS (commercial mortgage backed securities) market and requiring some loans to be removed from the portfolio before they buy, but spreads and UW guidelines have not changed in any meaningful way.

Re: Subprime Loans Debacle - Posted by ttime

Posted by ttime on May 12, 2007 at 06:16:16:


Thank you so much for the detailed reply. Your answer puts my mind at ease at least to some extent. You are an excellent teacher and adviser to this community at large.
Thnx again