Tidying Up the Subprime Mortgage Mess!

We are currently in the middle of a huge mortgage mess in the United States. Credit has tightened immeasurably on Wall Street and on Main Street in our hometown banks. Even foreign markets have been negatively affected.

Just yesterday the Federal Reserve lowered the discount rate with a 3/4 percentage cut in rate. But will this do any good?

Many say no and some say yes. It did some good on the stock market but not necessarily for the economy. The psychology of investing became a smidgeon more optomistic and that is always good.

However, we dealing in commercial real estate are kind of caught up in the middle of things. For the past several years the underwriting on commercial purchases has been quite stringent. In many cases buyers hoping to leverage a purchase with 15% to 20% downpayments have been forced to put 40% or more down in order to get financing.

These loans really have not been in jeopardy at all. However, the commercial investors have been tainted by the craziness of the subprime lenders and borrowers. Suddenly commercial loans have become even tougher to get and even though there have been very few defaults on these loans, the public is staring at them as though they are about to fall off the high wire.

The net result of this is a perceptible slow down in commercial property sales and in many cases leasing. Buyers are tending to hold off buying while waiting for the commercial market to come crashing down, which it most likely won’t do.

I think those buyers willing to step into the market now will be able to buy at a much better price than they have been able to for the past 2 or 3 years. This will ultimately create a much healthier commercial market for everyone as Sellers can also buy at a cheaper price and be able to move up in size much easier than they have been able to.

In the meantime the Federal Government is stumbling around trying to find some cure for several years of wild and irresponsible lending. The future will tell us how successful some of these schemes are.

Tags: commercial loans, mortgage crisis