Content provided in partnership with
Business Services Industry
Changing face of the mortgage market - evaluation of mortgage financing in response to depressed real estate market
Real Estate Weekly, Nov 11, 1992 by Andrew Lichtenstein
Like the Phoenix that rose from the ashes, an innovative concept in capitalization and mortgage financing is catching fire and taking off, out of the flames of a depressed real estate market.
The real estate market is not what it used to be; that's an understatement. If you had moved out of the country just six years ago in 1986, using some of the capital gains that you had made in the 1980's and returned today, you would find some major changes had taken place. Many of the companies and principals that you recognized as established leaders have either disappeared or are shadows of their former selves. Many bankers that you knew are out of a job. The spiralling craze of construction and co-op conversion, supported by souring resale values, finally glutted a once limitless demand and values have fallen. Cooperative is almost a dirty word to some bankers nowadays.
- Most Popular Articles in Business
- Research and Markets : Tesco Plc - SWOT Framework Analysis
- Do Us a Flavor - Ben & Jerry's Issues a Call for Euphoric New Flavors
- eBay made easy: ready to start an eBay business? These 5 simple steps will ...
- Katrina's lawsuit surge: a legal battle to force insurers to pay for flood ...
- Wal-Mart's newest distribution center opened last month near the southwest ...
- More »
Today the world is unrecognizable compared to yesteryear. The visual effects reveal the symptom of the disease. Far fewer limousines can be found on the streets. Just take a look and compare the size of the yellow page directories from 1986 to 1992; amazingly it has been shrinking in size.
Businesses have either: Fled the city, are not in business or cannot afford to advertise anymore. Principals lucky enough to cash in and sell their properties before the valuations came tumbling down are sitting with their cash riding out this storm. Those others unable to obtain their required price and hold out are riding this wave as well, without the luxury of cash received from sales. We all hope, as in the game Monopoly, that the one who buys and holds the most properties wins. In that board game, when you land on a property before your opponent does and you are low on cash, you often must mortgage your other properties in order to raise enough capital to purchase new ones.
If you have deep enough pockets, then as in Monopoly, you will win in the long run. The basic principal of that game seems to apply to the real world. Wait for your tenants to pass go, they collect $200 and are able to pay you the rent that they owe you. The only problem will be if your tenants stop collecting their $200 because the company that they work for lays them off, moves away from New York or goes out of business.
Whose pockets are deep enough to weather all financial uncertainties? Unfortunately, due to tax law changes in 1986, stock market collapse, high unemployment rates, followed by dismal consumer confidence levels and lack of spending, real estate market valuations spiralled downward. Mortgages that were originated based upon yesterday's high values were becoming due and payable. Lenders would not replace these funds completely and in some cases not at all.
Those that would not extend demanded full payment, putting buildings into default and even foreclosure. Loan loss reserves of institutions had grappled their liquidity and finally the biggest banking failure in history had ensued.
There are entirely new industries, careers, titles and specializations all focusing on these new market conditions. Banks have large departments with names like: Asset recovery, "special asset" sales, auction sales, non-performing loans, Real Estate Owned, Disposition, Workout, extensions and of course foreclosure experts. These professionals work with small and even the largest property owners, like Olympia and York, in an effort to facilitate solutions, negotiate restructures, discounts and as a last resort, disposition. The last stop in the real estate problem pipeline is also one of the biggest new companies and property holders on the scene today, the Resolution Trust Corporation.
Legislative restrictions, potential tax law changes, all are uncertainties that can affect the real estate industry. These and issues such as asbestos, environmental impact studies and lead paint, all cause banks and insurance companies to be more & more conservative.
Here's a story that may sound and even feel familiar. A divorcee, as part of her divorce settlement, became the mortgagee of a Greenwich Village Manhattan apartment building.
She was living on the interest of this second mortgage which was 12 percent, and was making ends meet. As time went by and the economy deteriorated her trips to the mailbox each month became harrowing for her. No longer were her checks there on the first of the month, nor the eighth or 14th. This woman contacted me and asked me for help. I advised after analyzing the underlying security that rather than her praying with the mortgagor for the economy to turn around, she should consider selling her mortgage to someone with thicker skin and cash in before it was too late. I found a buyer for the mortgage, satisfying all parties and refinanced the first mortgage for the property owner at a lower rate.
So out of this mess comes some good news.
Interest rates are at their lowest levels in 15 years. Buyers may not be willing for years to pay those former market values for real estate, but there are buyers out there for your mortgage equity. Today, I have developed a following with mortgagees who call me with their performing and non performing mortgages to receive a quotation; they sell and cash in their mortgage receivables. Being associated with one of the most respected, highly regarded mortgage brokerage firms in the metropolitan area and maintaining close contact with over 60 lending institutions, getting the lowest possible rates and highest possible dollar amounts available for our real estate property owner clients, enables us to provide a completely new service which has surprised us with its unprecedented demand.
Find Research Guides for:
Most Popular Articles in Business
- Research and Markets : Tesco Plc - SWOT Framework Analysis
- Do Us a Flavor - Ben & Jerry's Issues a Call for Euphoric New Flavors
- eBay made easy: ready to start an eBay business? These 5 simple steps will ...
- Katrina's lawsuit surge: a legal battle to force insurers to pay for flood ...
- Wal-Mart's newest distribution center opened last month near the southwest ...
- More »