Credit Crisis Forcing Lenders And Banks To Shut Down Their Mortgage Division

Boston, Massachusetts, February 21, 2008 –

The credit crisis that started last summer, has lasted longer than everyone expected, as the top banks and investment banks continue to write-down billions of dollars.

More than $1 trillion in commercial real estate acquisitions were made globally last year, according to Real Capital Analytics, but with the recent turmoil in the residential subprime mortgage market, regulators are concerned about the quality of the commercial paper that’s out there.

Investment banks decided it was time to tighten their lending standards under the scrutiny of the regulators, over the commercial mortgage paper they originated in the form of CDO’s or other commercial mortgage backed security instruments.

The result of the enormous amount of write-downs and the result of investigation into bond insurers has made buyers of commercial paper quite skittish. So much in fact, that the spreads for commercial paper have become something of an anomaly, as trading desks all over the country try to guess what a profitable spread will be when it comes time to sell their portfolio.

This has made institutions afraid to lend, for fear of more losses and lurking financial pitfalls ahead.

What does all of this mean? It means that financial institutions are apprehensive about the solvency of other institutions. They are building a sinking fund for their own troubles. As a result, higher yields are required on money that is loaned out and this is causing the credit markets to freeze up. This equates to no and/or limited money to lend, as well as much more expensive money.

People all over the country assume that since the Federal Reserve cut rates, that it equates to lower interest rates for commercial mortgage loans. That is false and is being proven otherwise, as spreads are increasing on a weekly basis.

The Federal Reserve suggests that economic activity will slow down considerably during the first half of 2008, but the data does not contend that we are in a recession or that one is around the corner. In any case, we are delving into the unknown, as analysts all over the world are stumped in trying to find the proper solution to stop the bleeding in the credit markets.

There is some good news in all of this. There are still lenders out there who are able to provide commercial mortgages at spreads that are slightly below market spreads and are not panicked about the future outlook of the economy. You may have to do some research, but they are out there and they are still lending money. The secondary market is thriving, like a daisy through a crack in the cement, and it’s just a matter of who is willing and able to close a loan, in spite of the credit crisis and talks of a possible recession.