Shenanigans in the Commercial Mortgage Patch?

You know it is happening–I know it is happening–the question is to what level phony mortgages are being written in the commercial mortgage market?

We all have our own thoughts and opinions on subjects like this, but to truly get to the bottom of it you would need to work 24 hours a days for months on just this one topic. Since none of us have this type of time we depend on others to do the legwork.

Here is an article–I can’t vouch for how accurate it is, but typically where there is smoke there is fire–is it a backyard bonfire, or a ranging wild fire?

Check out this article if you haven’t seen it already.

20 thoughts on “Shenanigans in the Commercial Mortgage Patch?”

  1. 6 loans does not a CMBS make.

    What’s in a normal package? Probably a hundred or more?? What I track are the McReit’s and their pfds…….. have clawed back from 10 to 30 cents on dollar up to 75 cents on dollar…while many BB to BBB companies are down to that same level as well. Everything has repriced, and 1 big theme we are hearing is the commercial RE market will never be the same. People don’t want to go back downtown. If you ask me that’s a bunch of phooey. But that’s another straw on the camels back. And for now it’s not insignificant.

  2. Tim, this is no surprise to me at all. I know that in the residential area, zero money down loans came back in the past few years. In fact, I talked to a realtor friend of mine about a year ago and she told me that she went to a settlement were the buyer actually got money BACK at closing. Apparently it was due to a large “credit” from the seller of the property that was supposed to go to the buyer. Right now, I’m just not sure how many bad loans the banks have on their books.

    I think I’ve seen this movie before.

    1. Kaptain, You saw the movie how about having a part as one of the bit players in the movie? The fun part is you even get to read the script while its being filmed and meeting the other players.
      Meeting the property appraiser who says a vacant field is worth 50,000 more in one month so it can be refinanced to a new group of buyers. On and on…

    2. Seen the movie several times. Many people don’t even remember what a S&L was. Remember the Home Savings branches that looked like mausoleums?

    3. kaptain–as you likely know I am a residential appraiser and I am very careful. I have the same clients I had 20 years ago–and I don’t take new clients–just local community banks and credit unions. Yes Fannie lowered the down payments acceptable to 2.5 or 3% a couple years ago and I shy away from those.

      1. Tim, I was a little surprised that the down payment amounts were lowered in the past couple of years. When I was preparing tax returns in the past two years (just a little part-time work with my prior CPA firm), I was shocked to see some of the settlement sheets and how little was put down on houses. Of course the “trick” is to have the seller cover all of the transfer taxes (normally in PA, the buyer and seller each pay 1%) and the other “trick” is to have the seller make a “contribution” to the buyer – so in effect many people were putting zero down on the houses. Of course the realtors and property sellers were fine with this, as they collected their commission and the properties were being sold at inflated values. As of May, almost 4 million Americans are not paying their mortgages right now.

        At least for me, this is why I’m not buying anything in the banking sector right now, even though a number of banks probably have really strong financials. I’m just not sure who is sitting on bad loans. It’s very expensive for a bank to foreclose on a house. The process is long, they have a bad loan on the books and the recovery on the property is often unknown.

        1. Kaptain, reminds me of the pre financial crisis days. I went into closing to sell my house and agent told me to “make it work”, they had to increase the selling price I had on home by $10,000 and then create a secondary loan payable to me. They told me the expectation was I throw the paper in the trash and not try to collect on it. I did, as I got what I wanted, but I didnt put any thought into the process of it. Lord knows, what goes on if they did that on my house back then.

          1. Grid, that is a perfect example of some of the issues with the residential housing market – so you took the second “lien” on the property but knew you may not collect. Almost all of the settlement sheets I looked at the past two years had the sellers paying for all transfer taxes, plus seller contribution to the buyer. Based on the sales prices in my area, I believe the properties were also above mortgage value. This is the reason, at least for now, I won’t touch the bank preferred stocks – they are just not right for me with 4 million people not paying their mortgages now, although some of these people may be behind by just one payment.

            1. Kaptain, I only own 2 myself now… CBKLP and SBNCM. No interest in adding to the collection either.

  3. Estimated property values especially for mall operators seem to experience higher inflation levels once they are on the books.

  4. Tim wasn’t it Wells Fargo who bought Country Wide in last crisis? All those employees had to go somewhere.
    Golden West savings and loan, Soderling bros. Calpers teachers union, San Francisco plumbers union retirement fund questionable investments, Tennax Mortgage, Japanese property developers,
    Whats new? Been there and seen it before, why does it keep happening ?

      1. Thanks J,
        Point is you turn over a rock and the vermin just crawl under another. The Savings & Loan crisis of the 80’s was the subject congressional investigations.
        laws were supposed to of been put in place so it wouldn’t happen again. Then 10 yrs later you had the mortgage crisis , now this time you have the federal reserve buying up CLO’s
        We are letting the foxes be in charge of the henhouse and we are the flock.
        The big players are going to come out of this and the little guys get told to take their losses off their taxes.
        Not saying all of them are bad, just be aware if your in some investor pool with one of these mortgage finance and development companies that your not in the kiddie pool with the Sunday school teacher and the widower and small business owner, but in the adult pool with the bankers, politicians.
        My first post was a over all view of history, my experience is a fact.

    1. Charles M–you might be right–we’ll see how widespread this issue is.

      1. I spoke to a Realtor in Houston this week. I expected to hear that the market was dead due to the virus and/or oil. Exactly the opposite! He said he sold more houses in the last month than in many years. Answer was not surprising, but only in hindsight. Dad working for home, mom working from home, 3 kids at home= need a bigger house. We understand that many people are not paying their mortgages and they do NOT have to if it is a FHA/Fannie/Freddie owned loan. What I am hearing is that the Feds have pressured the major banks to do the same on loans they kept on their books. Lord only knows how all of this will work out long term.

        1. Tex–right–what little is on the market is selling instantly–not certain what will happen when reality sets in and helicopter money goes away. If unemployment stays in the 6-10% area until the end of the year we might see a new chapter written.

        2. If the work from home trend continues, I think you’ll see an exodus away from expensive urban centers and toward smaller towns and suburban settings. State and local government response to the pandemic is another factor that will influence where folks choose to work/live. A lot of Californians are eye-balling Florida and Texas right now!

          1. That’d be Florida, Texas AND TENNESSEE…. I’m hearing from realtors of a dramatic increase in interest in property in our neck of the woods between Knoxville and Chattanooga. In addition, 3 houses have just been approved for building in our 103 lot community with 11 houses in it presently and one additional house just being started…..

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