July 22, 2024

Illuzzi Letter

Envisioning And Creating Your Dream Home

The Bailout, Real Estate, Mortgages, Economy and the Stock Market – Oh Boy!

The Bailout, Real Estate, Mortgages, Economy and the Stock Market – Oh Boy!

The Bailout, Real Estate, Mortgages, Economy and the Stock Market – Oh Boy!

What’s My Prognosis Doctor?

Oh boy! Here we go again. We had a great reversal day in the stock market on Thursday which led into a great day on Friday on news of a mortgage market and financial institution bailout plan. This all combined with a massive short squeeze on the 799 financial stocks that the SEC instituted a short sale ban on.

We then had a Monday where Goldman and Morgan became banks, the dollar and bonds got routed, oil exploded (although the rise may have been technical) and apparently some people may have found ways around the short selling ban. The market gave back everything it had picked up on Friday.

What Does This Mean For Me (and you) and the Mortgage Market

Once the final form of the bailout plan is established ( hopefully sooner than later), what is it going to mean for me and you and the mortgage markets.

Good Question.

As a participant in the commercial mortgage and real estate markets, I want to know if it will mean that financial institutions that remain will once again be willing to lend. Once we know that they are willing to lend, the question will become who they are going to be willing to lend to.

If I have a buyer that wants to buy a mixed-use property that has a DSCR of 1.32, the buyer has a credit score of 660 and has the 6 months reserves that most lenders will require today, will they get a loan? Is the liquidity going to come back for a borrower like this, or will everyone remain in protection mode?

Some of the bridge loan lenders I know want to know if the exit strategies that they counted on a year ago, which then evaporated, will once again be plausible.

They have a borrower who borrowed on his income producing building at 50{bc1e42e53d8565163e9cec719c82f5e0892e054fb5d628f08363879e07731a2f} LTV because he needed to make improvements but his credit score was less than stellar. The exit strategy was to get the credit score up and refinance into a conventional loan. The credit score is up, but will a lender now lend?

Then we have another borrower who has a construction loan to build a single family home, has a 650 score and an appraisal on the finished home that says she needs a 75{bc1e42e53d8565163e9cec719c82f5e0892e054fb5d628f08363879e07731a2f} LTV. Can’t find a lender.

This is a segment of the market that not everyone thinks about, but until the banks begin to lend they cannot close out good loans and make new ones. Worse they will have to begin to foreclose on borrowers who never thought that these expensive loans would be outstanding this long.

Enough of the Negativity!

A week or so ago I wrote a piece that said to put the doom and gloom behind us and focus on the task at hand which is a plan to drive business. I said that with all sincerity and still mean it today.

The problem is that the government decision making process and the news flow in general sometimes makes it hard to do. I think the thing to do is to stop watching the financial channels like CNBC, and stick with reruns of All In The Family and MASH.

Sports News

You know what I am going to do? Concentrate on my teams, the Mets and the Jets, to bring my head up and get me focused on the eye of the tiger. Went to Shea last night and left early to come home and watch the Jet game. Oh boy!

I think I’ll just put CNBC back on.