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Roy
Quasi-Infallible Egocentric Tyrant
| Joined: | Mon Apr 4th, 2005 |
| Location: | Washington USA |
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Posted: Mon Aug 31st, 2009 05:52 am |
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Here it comes: the commercial real estate collapse.
Now, think about this for a moment, if you haven't already. Who, in their right minds is going to want to prop us all these institutions all over again?
Can you think of anyone outside of Wall Street or Washington, DC who ain't an elite member of the financial world?
Commercial Real Estate Lurks as Next Potential Mortgage Crisis
Federal Reserve and Treasury officials are scrambling to prevent the commercial-real-estate sector from delivering a roundhouse punch to the U.S. economy just as it struggles to get up off the mat.
Their efforts could be undermined by a surge in foreclosures of commercial property carrying mortgages that were packaged and sold by Wall Street as bonds. Similar mortgage-backed securities created out of home loans played a big role in undoing that sector and triggering the global economic recession. Now the $700 billion of commercial-mortgage-backed securities outstanding are being tested for the first time by a massive downturn, and the outcome so far hasn't been pretty.
The CMBS sector is suffering two kinds of pain, which, according to credit rater Realpoint LLC, sent its delinquency rate to 3.14% in July, more than six times the level a year earlier. One is simply the result of bad underwriting. In the era of looser credit, Wall Street's CMBS machine lent owners money on the assumption that occupancy and rents of their office buildings, hotels, stores or other commercial property would keep rising. In fact, the opposite has happened. The result is that a growing number of properties aren't generating enough cash to make principal and interest payments.
The other kind of hurt is coming from the inability of property owners to refinance loans bundled into CMBS when these loans mature. By the end of 2012, some $153 billion in loans that make up CMBS are coming due, and close to $100 billion of that will face difficulty getting refinanced, according to Deutsche Bank. Even though the cash flows of these properties are enough to pay interest and principal on the debt, their values have fallen so far that borrowers won't be able to extend existing mortgages or replace them with new debt. That means losses not only to the property owners but also to those who bought CMBS -- including hedge funds, pension funds, mutual funds and other financial institutions -- thus exacerbating the economic downturn.
A typical CMBS is stuffed with mortgages on a diverse group of properties, often fewer than 100, with loans ranging from a couple of million dollars to more than $100 million. A CMBS servicer, usually a big financial institution like Wachovia and Wells Fargo, collects monthly payments from the borrowers and passes the money on to the institutional investors that buy the securities.
CMBS, of course, aren't the only kind of commercial-real-estate debt suffering higher defaults. Banks hold $1.7 trillion of commercial mortgages and construction loans, and delinquencies on this debt already have played a role in the increase in bank failures this year.
But banks' losses from commercial mortgages have the potential to mount sharply, and the high foreclosure rate in the CMBS market could play a role in this. Until now, banks have been able to keep a lid on commercial-real-estate losses by extending debt when it has matured as long as the underlying properties are generating enough cash to pay debt service. Banks have had a strong incentive to refinance because relaxed accounting standards have enabled them to avoid marking the value of the loans down.
"There is no incentive for banks to realize losses" on their commercial-real-estate loans, says Jack Foster, head of real estate at Franklin Templeton Real Estate Advisors.
CMBS are held by scores of investors, and the servicers of CMBS loans have limited flexibility to extend or restructure troubled loans like banks do. Earlier this month, it was no coincidence that CMBS mortgages accounted for the debt on six of the seven Southern California office buildings that Maguire Properties Inc. said it was giving up. "During most of the evolution [of CMBS] no one ever thought all these loans would go into default," says Nelson Rising, Maguire's chief executive.
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"The force and degree of a man's inner benevolence evokes in others a proportionate degree of ill-will" - Gurdjieff
"In a time of universal deceit, telling the truth is a revolutionary act." — George Orwell
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*Phil*
Opinionated Interventionist
| Joined: | Thu Apr 21st, 2005 |
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Posted: Tue Sep 1st, 2009 11:10 am |
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China announced yesterday that any Credit Default Swaps and other derivatives contracts that the Western Banksters sold them will be cancelled if they lose money. A "Kiss my butt" clause unilaterally added. Goldman Sacks and JPMorgan are not amused that the Chinese won't play their rigged game anymore.
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Pecca fortiter, sed fortius fide et gaude in Christo!
Galactic Signature: Blue Self-Existing Monkey
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Roy
Quasi-Infallible Egocentric Tyrant
| Joined: | Mon Apr 4th, 2005 |
| Location: | Washington USA |
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Posted: Tue Sep 1st, 2009 08:22 pm |
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Got a link on that, Phil?
____________________
"The force and degree of a man's inner benevolence evokes in others a proportionate degree of ill-will" - Gurdjieff
"In a time of universal deceit, telling the truth is a revolutionary act." — George Orwell
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*Phil*
Opinionated Interventionist
| Joined: | Thu Apr 21st, 2005 |
| Location: | North Carolina USA |
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Posted: Wed Sep 2nd, 2009 12:05 am |
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you betcha
here is the latest info on this developing story
http://www.reuters.com/article/ousiv/idUSTRE5801UT20090901
____________________
Pecca fortiter, sed fortius fide et gaude in Christo!
Galactic Signature: Blue Self-Existing Monkey
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QueenB
Honored Fellow Grover
| Joined: | Sun Aug 16th, 2009 |
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Posted: Wed Sep 2nd, 2009 12:40 pm |
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| How do you think all the people who are jobless now, the real estate folks and such feel about their Obutt now?
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*Phil*
Opinionated Interventionist
| Joined: | Thu Apr 21st, 2005 |
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Posted: Fri Sep 4th, 2009 01:47 am |
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Lately they are mighty quiet where I work. Last year they were all ebullient over Obama. BTW I have a temporary job at a huge medical insurance company - the Obama "Public Option" directly puts the fear of unemployment into the Obama chorus here. LOL!!!!
____________________
Pecca fortiter, sed fortius fide et gaude in Christo!
Galactic Signature: Blue Self-Existing Monkey
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QueenB
Honored Fellow Grover
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Posted: Fri Sep 4th, 2009 11:57 am |
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I am sure it is "never talk politics" in these places now!
Maybe he will give all of them jobs in Acorn and his USA Home Security Army..after all
did he not say that the military and National Guard was not enough to protect us?
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*Phil*
Opinionated Interventionist
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Posted: Sun Sep 13th, 2009 12:28 pm |
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60 Minutes just did a report that underscored the fact that the mortgage crises has another wave of defaults as big as the first: alt-a and option arms that is just getting started and will grow to epic proportions over the next 2 years.
____________________
Pecca fortiter, sed fortius fide et gaude in Christo!
Galactic Signature: Blue Self-Existing Monkey
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QueenB
Honored Fellow Grover
| Joined: | Sun Aug 16th, 2009 |
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Posted: Sun Sep 13th, 2009 01:31 pm |
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SIXTY MINUTES TELLING THE TRUTH ...IT'S GOOD THEY DO BUT GOING TO BE BAD .
This is another reason they are in such a hurry.. we need the tea party people on capitol hill again and again and again to stop this.
The "AUDACITY" OF THE PRESIDENT TO LEAVE TOWN WHEN THEY COME TO SEE HIM!!
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