Well, anytime an article says refi-boom, expect a break in the columns! Currently the interest rates for long term loans are still near bottom, though not as low as December. For those who are interested, excepting circumstances when there is major market activity that causes inflation due to outside factors, December is usually a time when mortgage lenders see business tail off due to seasonal factors. The early sunsets and holiday parties are the least active time for home sales and purchases, which makes those months the ideal time to vacation for real estate professionals! In fact, most established residential realtor agents and brokers take from Thanksgiving until New Years off!



The current report is that purchases are back again! After 6 months of minimal activity in the buying front, its safe to say that, at least in Miami-Dade County there is rising demand for purchase money loans. That’s not to say that the rest of the South Florida market is dead, but according to my sources, and visits to pre-construction sales centers throughout the region, the catalyst is value buying. Major developers are ratcheting up sales incentives, or lowering prices, or both; And it’s working! That’s not to say that there aren’t other types of buyers, but we have observed buyers with prices up to 10% below the appraised values of their units and occasionally, better. Right now, in the South Florida region, this blogger has the following ratings for different classes of property:

Commercial/Industrial: Buy (Investor and Owner Occupied)
Commercial Multi-Family: Strong Buy (Investor and Owner Occupied)
Commercial Office Condominium: Buy (Owner Occupied) Neutral (Investor)
Residential Single Family Homes (under $500,000): Weak Buy (Owner Occupied) Buy (Investor)
Residential Single Family Homes (over $500,000): Hold (Investor and Owner Occupied)
Low-Rise/Micro-Condo (under 20 units): Buy (Owner Occupied) Hold/Neutral (Investor)
Mid to High Rise Condo / Large Low Rise Condominium Projects: Hold/Negative.

The high rise condominium conundrum is slowly moving towards the middle area of most people’s predictions. Sell if possible at reasonable price for long term investors still in the market with lots of equity but negative cash flow, or short term investors needing out. There will be some buildings where the pre-construction buyers are wiped out, lose their deposits, can’t close, etc.

However, more likely, we see a greater percentage of these high rise speculators willing to take Negative Amortization loans and eat the loss over a 5-10 year period, rent it out to pay the neg-am payment and gamble that the market for these units will strengthen during that time period. That still is a gamble, based on historical market results, that’s about 50-50. The Brickell Avenue Condo glut of the early 1990s lasted 10 years, but returned soaring results to those who waited patiently, and those who accumulated while prices were low. Meanwhile, the baby boomers are rapidly aging, and many will want a retirement home in South Florida, or second home, not to mention the strength of the Euro that may drive more capital in from across the pond.

Still at this time, it’s not fantastic odds for an investor. Being that real estate investment is best played as an active sport, rather than a passive game, the current odds are surely not in the investors favor compared to previous years, and different classes of property, and types of projects that still have healthy returns.



This would primarily relate to the companies who flew highest during the boom times of the last several years. If you are in the business then you need no introduction to Sub-Prime lenders. These companies are disappearing at a rate that financial institutions haven’t seen since the Savings & Loan scandals and Thrift Bank crisis of the 1980s. That’s not to say that our country’s banking sector is faring poorly, quite the contrary, as they have been allowed to expand operations into insurance, stock brokerage, credit cards, etc. our financial giants have become, well . . . GIANTS. Most of them are quite profitable with their popular (sic) new fees for everything from overdrafts to discussing things on the phone . . . .

However, the Sub-Prime loan origination companies (some of which are REITs) are running into larger and more imposing hurdles every day it seems. Several established companies have closed Wholesale Channels (which provide up to 80% of their businesses overall [big “did you know” here; Brokers account for up to 80% of loan originations in the USA today, compared to about 20% 20 years ago . . . the topic of another column}) and many have folded suddenly and completely.

This has to do with the buyers of these loans, who may in fact surprise you! Bear Sterns, Merrill Lynch and a host of pension and insurance companies which purchase Mortgage Backed Securities from those companies. Often times, these investment houses are not only the buyer and securitizer, but additionally they are the providers of the warehouse lines of credit which mortgage bankers are given authority to issue short term credit to borrowers, which is then repaid by the sale of the mortgage, note and associated loan documentation to investors.

In many instances, this means that a company is totally beholden to these investment firms for the essential elements of a mortgage banking businesses every day tools! It’s a classic “catch 22” situation that many businesses face, these days particularly by WalMart’s suppliers. As a buyer of your product grows in size and your business grows with it, the buyer’s power grows disproportionately large. The problems arise when a buyer is so large that they can demand more flexible buyback terms from the selling mortgage banker. With unrestricted buyback provisions, the investment firm doesn’t even need an excuse to sell a loan to the mortgage banker, who then has to use working capital, warehouse credit or any means available to satisfy the agreement or face litigation!

As in most correspondent lending situations, and nearly all loan sale situations, the buyer has a form of rights to sell a problem loan back to the banker who originated the transaction! Sometimes, this is under very specific circumstances, such as only in the case of discovered fraud, or if the loan does not perform in the initial 60-90 days. Some wholesale lenders (who are mortgage bankers that service Mortgage Brokers exclusively) even include limited buyback provisions into their corporate agreements with brokers (some of mine certainly do!).

If all of this sounds somewhat unfair, it is, it’s happening and happening at an accelerated pace as sub-prime loans default at their highest rate ever. An excellent article that addresses this post and its multifaceted issues was recently authored at Bloomberg and suggested reading for all . . . . .

Also, for those keeping track at home, this site tracks the demise of Mortgage Banking Operations with a collection of related links and articles.

As always, stay safe and Happy Hunting!