Fearing losses, banks are quietly dumping real estate loans • Hacker News Board

Re: Fearing losses, banks are quietly dumping real estate loans

#41

Post by highcountess » Tue, Jun 25, 2024, 1:37 AM UTC

bcrosby95 wrote: post #37

lwansbrough wrote: post #28

Earlier quoted context omitted.

Agreed. The de-risking of the housing market has been disastrous for The de-risking has come in the form of artificial scarcity caused by zoning gatekeeping and outdated fire code, amongst other things. It’s time North America took a hard look at the root causes and fixes them before there is a crisis of confidence in leadership (which is already happened to me - I’m moving out instead of buying in to the insanity.)

It really started with Greenspan's juicing the markets in the early '00s due to the dotcom bust and 9/11. We got a short reprieve after the 2008 crash. But the markets have been fucked up for a while now. Arguably the '08 crash was bad long term too. As far as I've read, a lot of people got out of the industry after that, which made it even harder to build.

He was juicing the real estate market before the aughts, and he was even warned before the aughts. There are clear indications and evidence that he did that with designs.

Re: Fearing losses, banks are quietly dumping real estate loans

#42

Post by TuringNYC » Tue, Jun 25, 2024, 1:39 AM UTC

danielmarkbruce wrote: post #23

timr wrote: post #16

Earlier quoted context omitted.

You're describing a situation where the second lien is underwater. This is not itself the value of the loan. Just in the obvious case, if the borrower continues to pay, the lien is worth the future value of its cashflows. Not everyone who goes underwater on a loan simply stops paying. In the US, even loans in default tend to have some value, because speculators are willing to buy the debt and attempt collection.

Then, just take the example and imagine they declare bankruptcy. That loan is going to be worth 0 in the vast majority of cases. Loans go to zero. It happens in real estate, it happens in oil and gas, it happens in other places I'm sure. It's not especially common, but it happens.

>> Then, just take the example and imagine they declare bankruptcy. That loan is going to be worth 0 in the vast majority of cases. >> Loans go to zero. It happens in real estate, it happens in oil and gas, it happens in other places I'm sure. It's not especially common, but it happens.

It is common, but at the end of a cycle. The chances of second lien loans being worth zero are higher and higher as leverage increases. This is for two reasons:

1. The greater the leverage, the smaller the required downturn to turn everything underwater. With 5% down mortgages, a 5% decrease in housing values makes you underwater (esp once you consider transaction fees.)

2. The greater the under-water, the less incentive owners have to continue paying, especially in non-recourse jurisdictions where no bankruptcy is required. Owners do "jingle-mail" where they mail the keys to the bank (figuratively) and walk away without having to declare bankruptcy. The bank is left with the mess.

Freddie Mac is already pushing to do 2nd lien HELOCs (https://www.housingwire.com/articles/freddie-macs-proposed-h...) and Fannie is considering it.

Re: Fearing losses, banks are quietly dumping real estate loans

#43

Post by jaggederest » Tue, Jun 25, 2024, 1:42 AM UTC

TheOtherHobbes wrote: post #25

jaggederest wrote: post #5

Earlier quoted context omitted.

As I've learned sometimes businesses are unable to properly value something that, intuitively, has a clear nonzero value. Classic example would be selling something with an ongoing royalty of e.g. 10% of future profit.

The UK has huge swathes of empty commercial property. The book value of the property is related to prospective rental income. It is - bizarrely - sometimes more profitable for owners and investors to maintain the fiction of high rental value without any income than to drop the rental value to something realistic and take a realised loss. Even if that's generating real income. I would guess it's the same in the US. Th…

Yeah I think the world collectively needs mark-to-market rules for real estate quite urgently. This "we will give you 6 months free rent but never lower the rent rate" scam is pretty toxic.

Re: Fearing losses, banks are quietly dumping real estate loans

#44

Post by nordsieck » Tue, Jun 25, 2024, 1:45 AM UTC

tzs wrote: post #39

nordsieck wrote: post #32

Earlier quoted context omitted.

None of that would be a problem if people could just build. We need to double the number of bedrooms in most major cities.

There aren't enough people in most major cities to come anywhere occupying that many bedrooms. Are there enough people in rural areas, suburbs, and minor cities that want to move to major cities to supply renters for them?

> There aren't enough people in most major cities to come anywhere occupying that many bedrooms.

Right now.

But that's because it's too expensive to live there, so people move to outlying areas. But if the cost of housing starts to drop, people will start moving in, which will stymie the cost declines.

I'll admit that I'm not intimately familiar with all of the large cities in the US, but Seattle would be a slam dunk. The suburbs are way more populace than the city itself.

Same with San Francisco, although that city has more problems than just a shortage of housing.

I'm not sure to classify New York City, but Manhattan could easily double its bedrooms with no shortage of demand.

Re: Fearing losses, banks are quietly dumping real estate loans

#45

Post by demondemidi » Tue, Jun 25, 2024, 1:46 AM UTC

Kon-Peki wrote: post #38

dotBen wrote: post #36

I live in perpetual wonder that here in the US I have locked in a 30 year 2.3% mortgage, which I use for leverage, whereas back home in the UK people have to refinance every 2-5 years and so their mortgages trend roughly over the prevailing base rate for the term of the mortgage. Yes this article is about commercial real estate but it shows something is actually very broken from a credit market perspective - my loan…

> I have locked in a 30 year 2.3% mortgage, which I use for leverage > but then I'm also making a margin on the leveraged capital. Do you mind expanding on this? I’d like to understand what you are doing, as a fellow ridiculous mortgage holder.

It's called a humblebrag. Person responded offtopic to demonstrate how savvy they are investing, then steered back on topic with a brief anecdote.

Re: Fearing losses, banks are quietly dumping real estate loans

#46

Post by rickydroll » Tue, Jun 25, 2024, 1:47 AM UTC

lwansbrough wrote: post #28

api wrote: post #26

Earlier quoted context omitted.

Real estate infuriates me to the point that I find myself hoping it burns to the ground and that the whole industry suffers. “Real estate always goes up” is treated like a damn entitlement to the point that the financial well being of everyone under 40 today has been sacrificed to it. In 2008 it felt like the entire real economy was put on the chopping block to bail it out. I’d love for a real estate market that look…

Agreed. The de-risking of the housing market has been disastrous for The de-risking has come in the form of artificial scarcity caused by zoning gatekeeping and outdated fire code, amongst other things. It’s time North America took a hard look at the root causes and fixes them before there is a crisis of confidence in leadership (which is already happened to me - I’m moving out instead of buying in to the insanity.)

> The de-risking of the housing market has been disastrous for not(1%class)

fify,

the problems are class-based, not age/generation-based. the intergenerational conflict is fed by the 1% to keep us from paying attention to how they are robbing us.

Re: Fearing losses, banks are quietly dumping real estate loans

#47

Post by Zafira » Tue, Jun 25, 2024, 1:48 AM UTC

highcountess wrote: post #41

bcrosby95 wrote: post #37

Earlier quoted context omitted.

It really started with Greenspan's juicing the markets in the early '00s due to the dotcom bust and 9/11. We got a short reprieve after the 2008 crash. But the markets have been fucked up for a while now. Arguably the '08 crash was bad long term too. As far as I've read, a lot of people got out of the industry after that, which made it even harder to build.

He was juicing the real estate market before the aughts, and he was even warned before the aughts. There are clear indications and evidence that he did that with designs.

I think the general consensus is that Greenspan was an ideologist and effectively a useless Fed chair since he didn’t believe in regulation. The only reason he was probably not ousted was because he had enablers with the added leverage that the economy was doing pretty well during his tenure.

Re: Fearing losses, banks are quietly dumping real estate loans

#48

Post by bamboozled » Tue, Jun 25, 2024, 1:49 AM UTC

api wrote: post #26

theandrewbailey wrote: post #22

> It’s an early but telling sign of the broader distress brewing in the commercial real estate market, which is hurting from the twin punches of high interest rates, which make it harder to refinance loans, and low occupancy rates for office buildings — an outcome of the pandemic. And that's what I think is behind much of the push for RTO. While a lot (if not most) office space is rented, corporate executives are the…

Real estate infuriates me to the point that I find myself hoping it burns to the ground and that the whole industry suffers. “Real estate always goes up” is treated like a damn entitlement to the point that the financial well being of everyone under 40 today has been sacrificed to it. In 2008 it felt like the entire real economy was put on the chopping block to bail it out. I’d love for a real estate market that look…

I realized the other day, and I might've been in denial about it, but I cannot return to my home city as it's just too expensive now. Even if I wanted too I simply couldn't afford it without introducing quite immense financial stress into my life.

In some way I hope it crashes as well, just so I can get back in if I wanted too, but on the other hand, so many of my friends and family have bought into the "real estate always goes up" mantra that if it goes backwards, they will be ruined financially. With interest rates up and their mortgage repayments going up dramatically, I've already seen more divorce than I ever imagined I'd see. The financial pressure just broke marriages.

In hindsight, I'm probably better off now that I moved away to a cheaper place in the mountains and leave nearly debt free. I invest my money rather than give it back to the bank with interest.

Re: Fearing losses, banks are quietly dumping real estate loans

#49

Post by mitthrowaway2 » Tue, Jun 25, 2024, 1:50 AM UTC

charlie0 wrote: post #34

lwansbrough wrote: post #28

Earlier quoted context omitted.

Agreed. The de-risking of the housing market has been disastrous for The de-risking has come in the form of artificial scarcity caused by zoning gatekeeping and outdated fire code, amongst other things. It’s time North America took a hard look at the root causes and fixes them before there is a crisis of confidence in leadership (which is already happened to me - I’m moving out instead of buying in to the insanity.)

Voting with your feet is the most practical option.

I don't know of anywhere that I can move to in Canada that has the zoning rules I want and also a hospital. I'm not sure I could even find a place sans hospital. I think that means I have to vote with my ballot, not my feet.

Re: Fearing losses, banks are quietly dumping real estate loans

#50

Post by creer » Tue, Jun 25, 2024, 2:00 AM UTC

toomuchtodo wrote: post #10

creer wrote: post #8

Earlier quoted context omitted.

> Might be worth nothing In the US it's more or less impossible for the loans to be worth "nothing". They are usually secured by the property itself. But the loan itself is worth less if it's in default, rather than not quite yet in default. So it can be a better deal for a bank to sell it away now rather than later.

These investments should have immediate positive value at the right price, but there are potential edge cases that are catastrophic to such a speculative play (maybe have to tear the building down, future dispute wrt claim, etc). Unlikely, but possible.

Yes, and we do hear sometimes of a massive pile of taxes due, coming with the building.