ok, NOW, I'm scared!

Wall Street's Next Crisis

Dec 17 2007

Now that the subprime shakeout is nearly over, another real estate mess looms, this time in commercial property.

by Jesse Eisinger

So far, the current credit crisis has zeroed in on mortgages for the less affluent. But easy credit was a sprawling millipede whose wobbly legs reached into the farthest corners of the financial markets. This is the year the other 999 shoes start to drop.

Any loan to any borrower can begin to seem subprime if there's too little down and too much debt. And that, unfortunately, brings us to the commercial-real-estate market.For the past several years, the market for commercial property—offices, malls, apartment buildings, industrial plants, warehouses, and the like—has enjoyed the very best of times. Prices soared, and lenders lent readily. Owners had no problem meeting their payments. By early 2007, delinquencies had fallen to record lows.

In their own way, however, commercial-real-estate loans were no less foolish than those made to home buyers with speckled credit. And as with the subprime mess, the reckoning will come. Just like what happened in other sectors already hit by the credit crunch, these loans will cause problems that will probably find their way beyond the obvious players in the commercial-real-estate market. Judging by the aspects of the credit crisis we've already seen, commercial-real-estate trouble will probably emerge sooner than people expect—and will be worse than they anticipate. Portfolio

Analysis: as a Commercial Real Estate Appraiser here in lovely NYC I speak from first hand experience when I say that what people are paying for rinky dink apartment buildings in Brooklyn is just a little too much for my comfort, stomach and most of all common sense. It seems the same yayhoo's who thought that finishing a Carlton Sheets or Ron LeGrand workshop qualified them as "house flippers" also qualified them as real estate "entrepeneurs" and therefore they can "MAKE IT BIG!" in multi-family investing. The most quoted, and hence, the least favorite thing I like to hear is "Hey, but it sold for 10 times rents!" SO!?!? What are the rents? What are the taxes? Expenses? INSURANCE!?!?! Vacancy rates? Neighborhood trends? Oh and most importantly, DEBT SERVICE?

When your "posh" Bed-Stuy / Bushwick / 'Billy Burg "gonna be condo one day" shack starts losing tenants because of the more than likely recession because the rents were too high from the git go you're gonna have a hard time paying YOUR mortgage let alone the building's mortgage.

Hint: WAIT! Keep your powder dry. Walk the streets of those neighborhoods that you're thinking of investing in. Use your EYES. Honestly assess the stability and quality of the neighborhood(s) your looking at. No cars on blocks? GOOD! But crackheads around the corner? NOT GOOD! Take a lesson from Warren Buffet: invest in something that is unpopular, cheap, but WILL rebound and most of all wait. Don't be Donald Trump.

Surely, you jest!? No, and stopping calling me Shirley.

playing games with shells

Deals With Hedge Funds May Be Helping Merrill Delay Mortgage Losses

By SUSAN PULLIAM

November 2, 2007 12:28 p.m.

Merrill Lynch & Co., in a bid to slash its exposure to risky mortgage-backed securities, has engaged in deals with hedge funds that may have been designed to delay the day of reckoning on losses, people close to the situation said.

The transactions are among the issues likely to be examined by the Securities and Exchange Commission. The SEC is looking into how the Wall Street firm has been valuing, or "marking," its mortgage securities and how it has disclosed its positions to investors, a person familiar with the probe said. Regulators are scrutinizing whether Merrill knew its mortgage-related problem was bigger than what it indicated to investors throughout the summer.

from the WSJ

"Boy, when you die at the Palace, you really die at the Palace!"*

*Mel Brooks, "History of the World, Pt. 1"

They get you coming, and they get you going.

Dubious Fees Hit Borrowers in Foreclosures

As record numbers of homeowners default on their mortgages, questionable practices among lenders are coming to light in bankruptcy courts, leading some legal specialists to contend that companies instigating foreclosures may be taking advantage of imperiled borrowers.

Because there is little oversight of foreclosure practices and the fees that are charged, bankruptcy specialists fear that some consumers may be losing their homes unnecessarily or that mortgage servicers, who collect loan payments, are profiting from foreclosures.

Bankruptcy specialists say lenders and loan servicers often do not comply with even the most basic legal requirements, like correctly computing the amount a borrower owes on a foreclosed loan or providing proof of holding the mortgage note in question.

Now you know why there's a Hell folks, and I'm not joking.


from the NYTimes