The Window Is Closing for Subprime Commercial Borrowers!

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Tell like us on facebook your auto repair mechanic, your preferred restaurant owner, and the owner of your pool cleaning service that it is last contact for subprime commercial loans. I predict that the subprime commercial mortgage loan marketplace will shrink by 75% within six months. If these little company owners are ever going to pull some equity out of their commercial buildings to tide them via the coming recession, it might be as well late if they do not apply in the next couple of weeks.

The way that Wall Street lenders, like Bayview Monetary (a fine firm and great buddies of ours), raise their lending capital is to securitize their subprime commercial loans. They put the loans in a large pool. They assign the pool of loans to a trust. The trust problems bonds backed by the loans in the trust.

Then investment bankers sell these bonds into the Asset-Backed Securities (ABS) marketplace. In addition to subprime commercial loans, credit card debt and vehicle loans are also frequently sold as ABS bonds.

The issue is that the buyers of these ABS bonds are now requiring massively greater yields. I read in Bloomberg yesterday that the buyers of AAA-rated ABS bonds are presently demanding yields that are a full 2% (200 basis points!) greater than they had been just eight months ago. The appetite for ABS bonds is clearly waning.

In addition, Wall Street subprime commercial lenders are also becoming forced to reduce their loan-to-value ratios. For example, Silverhill Monetary lately lowered its high-LTV plan from 97% to just 85% loan-to-value.

These modifications are a warning that the marketplace for ABS bonds might be drying up. If Bayview, Lehman Brothers and the rest of the Wall Street subprime commercial lenders all of a sudden dial back their programs, the fairly tiny difficult cash commercial lending businesses will be unable to deal with the overflow. Subprime commercial mortgage lending could largely dry up, and it could occur extremely like us on facebook rapidly.

Consequently you require to tell the owner of your preferred coffee shop and your auto body repair guy that if they are ever going to try to borrow against their buildings, they like us on facebook much better do it now!