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Fearing losses, banks are quietly dumping real estate loans

nytimes.com

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

#51

Post by hardwaresofton »

fnordpiglet wrote: post #17
doodaddy wrote: post #13

Just moments ago I read that regulators are raising flags about banks' plans for unwinding their derivatives portfolios. Then I come here to read this. Likely happenstance. Maybe no connection. But a little jarring. Then again, they say there are no coincidences! https://www.reuters.com/business/finance/us-bank-regulators-...

To be clear, I owned a big bank risk platform for about 10 years and this is an ever reoccurring story and nothing I read in the article you linked feels concerning or abnormal. Particularly on the living wills, stress testing, and capital reserves it’s a bit of a game of chicken between regulators and the regulated. The reality is things are considerably better than they were in 2007.

> I owned a big bank risk platform for about 10 years

Have you written about this anywhere? I can’t decide if it was mindnumbingly boring or the ride of a lifetime (leaning towards the latter).

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

#52

Post by creer »

TuringNYC wrote: post #11
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.

>> In the US it's more or less impossible for the loans to be worth "nothing". Totally disagree. A loan can absolutely be worth nothing, especially if it is a 2nd/subordinated lien. Imagine you buy a house for $1000 with $800 borrowed ($700 first lien, $100 second lien.) If the home goes down in value 30%, the second lien is worthless. The administrative and legal cost of recovering the second lien may be greater tha…

Fair for 2nds. yes.

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

#53

Post by j7ake »

mitthrowaway2 wrote: post #49
charlie0 wrote: post #34

Earlier quoted context omitted.

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.

Calgary, Edmonton.

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

#55

Post by majormajor »

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…

> “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.

Real estate took a bath in 2008. So much that it scared developers and investors so much that they slowed building to ridiculous paces

If you want reasonable housing prices in the US you need either:

- to change demand so people want to leave today's dense and expensive cities and stop competing-up the prices. The "RTO is all about commercial real-estate" true-beleivers think remote work alone could do this, but the last few years aren't providing strong evidence of that. Density and geography have other appeals.

- or, some way to re-start massive construction in those in-demand areas to push rents and individual-unit pricing down... but in this case, the price of the real land would actually go way up (there's no development if there's no future value > present value)

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

#56

Post by majormajor »

nordsieck wrote: post #44
tzs wrote: post #39

Earlier quoted context omitted.

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…

You ain't gonna make it cheap, exactly, in those places. Look at Manhattan compared to Seattle - there's ALREADY far more dense housing in NYC than Seattle, yet prices stay high. People will be willing to pay more for those places with more amenities. That will continue.

But you're gonna make it a lot more livable and arrest the rate of inflation.

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

#57

Post by babyshake »

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.

A not very degen version of this is taking money that you might spend on your mortgage at a rate under 3%, and putting it somewhere safe that earns more than 5% (not hard to find).

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

#58

Post by nradov »

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…

Don't cry for JPMC. They most likely hedged the interest rate risk when they bought the bundle that included your mortgage (or some slice of it). I doubt that they are really underwater, at least not by much.

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

#59

Post by HeyLaughingBoy »

TuringNYC wrote: post #42
danielmarkbruce wrote: post #23

Earlier quoted context omitted.

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 increas…

> the less incentive owners have to continue paying

People keep saying this, but the only time they can come up with examples are when the owner wants out of the property. In the case of a home loan, being underwater is meaningless if you're not going anywhere. Most people will continue to pay because they need a place to live. I have yet to hear of someone who was underwater on their primary home loan and decided to stop paying it and default just because. For an investment property I could see that happening. For the house that you plan to live in for the next 20 years? No.

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

#60

Post by inhumantsar »

mitthrowaway2 wrote: post #49
charlie0 wrote: post #34

Earlier quoted context omitted.

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.

what zoning rules do you want?
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