Commercial mortgage problems, GMAC & Indy update, Bank branch pricing strong

It was mealtime during an airline flight. “Would you like dinner?” the flight attendant asked John, seated in front. “What are my choices?’ John asked. “Yes or no,” she replied.

Sometimes brokers feel that they are having fewer and fewer choices. One wrote to me last week and said, “Why would Wells or BofA or Chase want brokers to survive? I am getting the impression that the investors have more control through their branches, can hold correspondents financially responsible, and are perfectly happy with the amount of business through both channels.” It does appear that retail, wholesale, and correspondent pricing has “gotten out of whack” recently, with branch-level bank retail pricing looking very strong.

For anyone who wonders what time it is, this is a handy clock site:

The news services are reporting that IndyMac Bancorp, which failed in July after a run on its deposits, is close to being sold by the government to J.C. Flowers & Co. and Dune Capital Management, New York-based private equity firms, and the hedge- fund firm Paulson & Co.

Credit cards and commercial real estate are being carefully scrutinized for signs of trouble. In commercial real estate, it is believed that rising vacancy rates are directly related to the economy. And the added concern is the debt associated with commercial properties.  Many commercial properties are financed using LIBOR-based 5 year balloons, with a credit swap arrangement to “fix” the rate.  2004, 2005, and 2006 were big years in commercial real estate, and it doesn’t take a math major to add 5 years to them and see that 2009, 2010 and 2011 big refinance years with an estimated $160 billion in 2009.  Some of the nation’s largest commercial developers are already asking the federal government to set up a program that would increase lending to commercial real estate. Officials have said they will consider including commercial real estate in a $200 billion plan aimed at salvaging the market for car loans, student loans and credit card debt.

Last week GMAC received an early “Christmas present” by receiving the Federal Reserve’s approval to become a bank holding company. But it was contingent on them completing a debt-for-equity exchange by Friday where bondholders would convert 75% of their debt into equity. It was not done, and there was no comment from GMAC. Is this a serious blow? Will they have to file for bankruptcy protection or shut down, which would be a serious blow to parent GM’s own chances for survival? More than half of all new vehicle sales are aided by loans made at the dealership, and if this credit dries up… Stay tuned!

Last week was kind of slow for economic news, although rates tended to worsen. It is rare when rates improve during holiday weeks, especially after rates have improved so much this month. We did see that home sales, both new and existing, fell further though the decline in existing home sales was much sharper. Housing is definitely still under pressure in many markets with inventory continuing to climb.

I haven’t done very well on my resolutions in recent years -

2005: I will read at least 20 good books a year.

2006: I will read at least 10 books a year.

2007: I will read 5 books a year.

2008: I will read some articles in the newspaper this year.

2009: I will try and finish the comics section this year.


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