Comments on: I/O Mortgages Hit Commercial Real Estate http://www.ritholtz.com/blog/2009/06/io-mortgages-hit-commercial-real-estate/ Macro Perspective on the Capital Markets, Economy, Geopolitics, Technology, and Digital Media Tue, 14 Feb 2012 22:30:38 +0000 hourly 1 http://wordpress.org/?v=3.0.5 By: KellyD3 http://www.ritholtz.com/blog/2009/06/io-mortgages-hit-commercial-real-estate/comment-page-1/#comment-182366 KellyD3 Fri, 12 Jun 2009 08:37:23 +0000 http://www.ritholtz.com/blog/?p=28707#comment-182366 I was speaking to an acquaintance of mine who is an executive at a large commercial mortgage broker, at a time when the yield curve was inverted. I asked him if they were using the yield curve inversion as an opportunity to lower borrowing cost for their clients. He answered that no, their interest was to refi the loan every few years and rack up fees. They put extra fees on if the borrower wanted a longer term, thereby negating any yield savings. Nice to know they were looking out for their clients' interests :( I was speaking to an acquaintance of mine who is an executive at a large commercial mortgage broker, at a time when the yield curve was inverted. I asked him if they were using the yield curve inversion as an opportunity to lower borrowing cost for their clients. He answered that no, their interest was to refi the loan every few years and rack up fees. They put extra fees on if the borrower wanted a longer term, thereby negating any yield savings.
Nice to know they were looking out for their clients’ interests :(

]]> By: » CRE: BR on ‘Interest Only Mortgages” in CRE Redfish Emerging Markets.com: Helping Good Investors Make Better Decisions http://www.ritholtz.com/blog/2009/06/io-mortgages-hit-commercial-real-estate/comment-page-1/#comment-182021 » CRE: BR on ‘Interest Only Mortgages” in CRE Redfish Emerging Markets.com: Helping Good Investors Make Better Decisions Thu, 11 Jun 2009 16:28:06 +0000 http://www.ritholtz.com/blog/?p=28707#comment-182021 [...] CRE: BR on ‘Interest Only Mortgages” in CRE Posted in June 11th, 2009 by Mark in News: Commercial RE Interesting read today from Barry Ritholtz on interest only mortgages in CRE – read his full post here.  [...] [...] CRE: BR on ‘Interest Only Mortgages” in CRE Posted in June 11th, 2009 by Mark in News: Commercial RE Interesting read today from Barry Ritholtz on interest only mortgages in CRE – read his full post here.  [...]

]]> By: danm http://www.ritholtz.com/blog/2009/06/io-mortgages-hit-commercial-real-estate/comment-page-1/#comment-181911 danm Thu, 11 Jun 2009 14:39:00 +0000 http://www.ritholtz.com/blog/?p=28707#comment-181911 Kevin: Maximizing leverage implies boosting ROI. Kevin:

Maximizing leverage implies boosting ROI.

]]> By: KevinKleen http://www.ritholtz.com/blog/2009/06/io-mortgages-hit-commercial-real-estate/comment-page-1/#comment-181898 KevinKleen Thu, 11 Jun 2009 14:18:13 +0000 http://www.ritholtz.com/blog/?p=28707#comment-181898 Good post, but I think you incorrectly describe the motivation for these deals. The interest only period was not about maximizing the leverage or affordability - even though the actual payments were interest only, the loans were sized as though they were amortizing. The IO period was about goosing the return in the early years of the deal. With an amortizing loan the first year ROI in a typical deal was in the 3% range, which looked bad. Eliminating amortization in the first year boosted the ROI into the 6% range, which was much more palatable. I go through the math at the link below. http://residentialpropertyanalytics.blogspot.com/2009/06/cre-interest-only-revisited.html Good post, but I think you incorrectly describe the motivation for these deals. The interest only period was not about maximizing the leverage or affordability – even though the actual payments were interest only, the loans were sized as though they were amortizing. The IO period was about goosing the return in the early years of the deal. With an amortizing loan the first year ROI in a typical deal was in the 3% range, which looked bad. Eliminating amortization in the first year boosted the ROI into the 6% range, which was much more palatable. I go through the math at the link below.

http://residentialpropertyanalytics.blogspot.com/2009/06/cre-interest-only-revisited.html

]]> By: How the Common Man Sees It http://www.ritholtz.com/blog/2009/06/io-mortgages-hit-commercial-real-estate/comment-page-1/#comment-181895 How the Common Man Sees It Thu, 11 Jun 2009 14:15:00 +0000 http://www.ritholtz.com/blog/?p=28707#comment-181895 Greed has to be one of the most puzzling of all human foibles. You have people who will never need another penny in their lives if they never worked again 'betting' their fortunes to get more of what they will never be able to spend. We know they aren't doing it for their offspring. It is a giant ego trip. It is also that nasty spirit called greed and it is curious but incredibly sad to watch. I hope I am not that way if I ever get to those income levels Greed has to be one of the most puzzling of all human foibles. You have people who will never need another penny in their lives if they never worked again ‘betting’ their fortunes to get more of what they will never be able to spend. We know they aren’t doing it for their offspring. It is a giant ego trip. It is also that nasty spirit called greed and it is curious but incredibly sad to watch. I hope I am not that way if I ever get to those income levels

]]> By: hrux http://www.ritholtz.com/blog/2009/06/io-mortgages-hit-commercial-real-estate/comment-page-1/#comment-181872 hrux Thu, 11 Jun 2009 13:34:37 +0000 http://www.ritholtz.com/blog/?p=28707#comment-181872 All, I was curious if any of you have ever looked into the Harry Browne permanent portfolio strategy? I have been searching for a portfolio strategy that is well diversified, low drawdown ratios, lower market volatility and offers appreciation potential after inflation for quite some time and have been suffering from paralysis analysis big time. Recently, I have become more interested by a variation of Harry Browne's permanent portfolio theory. This strategy consists of 25% gold, 25% short term treasuries (1-3 yr. such as SHY), 25% long term treasuries (20+ yr. such as TLT) and 25% equity (could be 25% total US stock market, or a blend of 12.5% Total us stock market and 12.5% total international market). This portfolio has proven to hold up during inflation, deflation, prosperity and recessions. Since 1972 it has had 2 losing years and those had minimal drawdown (-3.9% in 1981 and -2.5% in 1994). In 2008 it was UP 1.9%. This portfolio has generated a 10.0% average annual return versus a 11.1% return for an all equity (US) portfolio with much less volatility. Needless to say I agree in that the typical 60/40 portfolio is not well diversified however Harry Browne's portfolio has 4 distinct asset classes that create one heck of a lazy portfolio. the following blog is dedicated to the HB permanent portfolio strategy: http://crawlingroad.com/blog/2008/12/22/permane... I would appreciate everyone's thoughts on this approach? Thanks, Heather All,
I was curious if any of you have ever looked into the Harry Browne permanent portfolio strategy? I have been searching for a portfolio strategy that is well diversified, low drawdown ratios, lower market volatility and offers appreciation potential after inflation for quite some time and have been suffering from paralysis analysis big time. Recently, I have become more interested by a variation of Harry Browne’s permanent portfolio theory. This strategy consists of 25% gold, 25% short term treasuries (1-3 yr. such as SHY), 25% long term treasuries (20+ yr. such as TLT) and 25% equity (could be 25% total US stock market, or a blend of 12.5% Total us stock market and 12.5% total international market). This portfolio has proven to hold up during inflation, deflation, prosperity and recessions. Since 1972 it has had 2 losing years and those had minimal drawdown (-3.9% in 1981 and -2.5% in 1994). In 2008 it was UP 1.9%. This portfolio has generated a 10.0% average annual return versus a 11.1% return for an all equity (US) portfolio with much less volatility. Needless to say I agree in that the typical 60/40 portfolio is not well diversified however Harry Browne’s portfolio has 4 distinct asset classes that create one heck of a lazy portfolio.

the following blog is dedicated to the HB permanent portfolio strategy:
http://crawlingroad.com/blog/2008/12/22/permane...

I would appreciate everyone’s thoughts on this approach?
Thanks,
Heather

]]> By: Bruce in Tn http://www.ritholtz.com/blog/2009/06/io-mortgages-hit-commercial-real-estate/comment-page-1/#comment-181865 Bruce in Tn Thu, 11 Jun 2009 13:08:33 +0000 http://www.ritholtz.com/blog/?p=28707#comment-181865 http://www.census.gov/marts/www/marts_current.html retail sales...flat except for big jump in gasoline sales... 3.6%..... http://www.census.gov/marts/www/marts_current.html

retail sales…flat except for big jump in gasoline sales…

3.6%…..

]]> By: VennData http://www.ritholtz.com/blog/2009/06/io-mortgages-hit-commercial-real-estate/comment-page-1/#comment-181862 VennData Thu, 11 Jun 2009 12:55:54 +0000 http://www.ritholtz.com/blog/?p=28707#comment-181862 This is what the TALF has been adjusted to assist, CMBS. So the government money will go a long way to helping banks renegotiate the debt coming due. Money's fungible, but I'd like to see how many of these loans get re-fied by TARP recipients vs ex-TARP, since the rest may be eligible for TALF. Is Wells not paying the TARP most likely because they are the leader in commercial real estate loans with $103 Billion... http://www.bloomberg.com/apps/news?pid=20601103&sid=aR72TKlxCQ7A "...$594 million of commercial mortgages, including those inherited from Wachovia, were no longer collecting interest, or about 0.6 percent of its loans..." Hmm... under one percent. And they've made allowances for that 1 percent, and say they will earn there way out of this. They must know what they've got. While the negative talking heads complain that "Anybody can make money if the gov't gives you money at zero percent" the Chinese are doing this as a matter of policy to many of their domestic and international businesses. It's good to see the Treasury is doing the same with TALF. Will Larry Kudlow say dropping rents are like a corporate tax cut? Or complain about how Obama is rough-housing with distressed debt investors an capitalism is dead? This is what the TALF has been adjusted to assist, CMBS. So the government money will go a long way to helping banks renegotiate the debt coming due. Money’s fungible, but I’d like to see how many of these loans get re-fied by TARP recipients vs ex-TARP, since the rest may be eligible for TALF.

Is Wells not paying the TARP most likely because they are the leader in commercial real estate loans with $103 Billion…

http://www.bloomberg.com/apps/news?pid=20601103&sid=aR72TKlxCQ7A

“…$594 million of commercial mortgages, including those inherited from Wachovia, were no longer collecting interest, or about 0.6 percent of its loans…”

Hmm… under one percent. And they’ve made allowances for that 1 percent, and say they will earn there way out of this. They must know what they’ve got.

While the negative talking heads complain that “Anybody can make money if the gov’t gives you money at zero percent” the Chinese are doing this as a matter of policy to many of their domestic and international businesses. It’s good to see the Treasury is doing the same with TALF.

Will Larry Kudlow say dropping rents are like a corporate tax cut? Or complain about how Obama is rough-housing with distressed debt investors an capitalism is dead?

]]> By: I/O Mortgages Hit Commercial Real Estate | The Big Picture | Money Blog : 10 Dollars : Money Articles. http://www.ritholtz.com/blog/2009/06/io-mortgages-hit-commercial-real-estate/comment-page-1/#comment-181858 I/O Mortgages Hit Commercial Real Estate | The Big Picture | Money Blog : 10 Dollars : Money Articles. Thu, 11 Jun 2009 12:17:44 +0000 http://www.ritholtz.com/blog/?p=28707#comment-181858 [...] Original post: I/O Mortgages Hit Commercial Real Estate | The Big Picture [...] [...] Original post: I/O Mortgages Hit Commercial Real Estate | The Big Picture [...]

]]> By: danm http://www.ritholtz.com/blog/2009/06/io-mortgages-hit-commercial-real-estate/comment-page-1/#comment-181857 danm Thu, 11 Jun 2009 12:16:13 +0000 http://www.ritholtz.com/blog/?p=28707#comment-181857 From St Louis Fed: Lending terms varied widely across lenders. Although mortgages made by savings and loan associations (S&Ls) were usually fully amortizing, thosemade by life insurance companies and commercial banks often included no, or only partial, repayment of principal over the life of the loan and were usually for shorter terms than those made by S&Ls. SeeMorton (1956) for more information about the mortgage market and loan characteristics during the 1920s. The largest difference between then and now is the balloon payment. When the loan came due, the borrower could not find a lender. That's why FRE and FNM were created. Canada stuck with the balloon loans, amortizing over 25 years but renegotiated every 3-5 years. Our answer to that depression issues was CMHC insured loans. So the banks aren't stuck with a fixed rate for 25-30 years. And it<s much tougher for homeowners to refi because our terms are much lower. From St Louis Fed:

Lending terms varied widely across lenders. Although mortgages
made by savings and loan associations (S&Ls) were usually fully
amortizing, thosemade by life insurance companies and commercial
banks often included no, or only partial, repayment of principal
over the life of the loan and were usually for shorter terms than
those made by S&Ls. SeeMorton (1956) for more information about
the mortgage market and loan characteristics during the 1920s.

The largest difference between then and now is the balloon payment. When the loan came due, the borrower could not find a lender. That’s why FRE and FNM were created.

Canada stuck with the balloon loans, amortizing over 25 years but renegotiated every 3-5 years. Our answer to that depression issues was CMHC insured loans. So the banks aren’t stuck with a fixed rate for 25-30 years. And it<s much tougher for homeowners to refi because our terms are much lower.

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