Real Estate Intelligence: A Wicked Credit Crunch
Led by seismic subprime holdings, the roiling debt markets are casting a pall over the entire real estate sector. And so they should.
Before central banks around the globe acted in unison to inject liquidity that lubricates the mortgage machine, published reports put the total number of unsold loans sitting in financial institutions’ warehouses waiting to be resold at around $260 billion in the U.S. and another $200 billion in Europe.
And with investment spigots turning off across the U.S., that money is going to sit for a while.
On a recent conference call with investors, a team of Wachovia Securities research analysts in credit markets and real estate addressed the rapidly changing nature of trading in debt and property.
Fixed-income market strategist Richard Gordon noted that what was more surprising than the subprime meltdown itself was “how many [lenders] refused to alter their positions despite a sure bet of an increased default rate on subprime and collateral mortgages originated in 2006.”
Last year saw a significant deterioration in underwriting standards, noted Gordon and others on the call. Gordon went so far as to say that some loans were even “fraudulently securitized and sold up into the secondary markets through collateralized debt obligations.”
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