The Window Is Closing for Subprime Commercial Customers!
Inform your automobile repair mechanic, your preferred restaurant owner, and the owner of your swimming pool cleaning company that it’s last call for subprime business loans. I forecast that the subprime business home loan market will shrink by 75 % within six months. If these small company owners are ever going to pull some equity out of their industrial structures to tide them through the coming recession, it may be too late if they don’t use in the next few weeks.
The manner in which Wall Street lenders, like Bayview Financial (a fine firm and good friends of ours), raise their lending capital is to securitize their subprime business loans. They put the loans in a huge pool. They assign the swimming pool of loans to a trust. The trust problems bonds backed by the loans in the trust.
Then financial investment bankers available these bonds into the Asset-Backed Securities (ABS) market. In addition to subprime industrial loans, credit card debt and loan are also frequently offered as ABS bonds.
The issue is that the purchasers of these ABS bonds are now needing enormously higher yields. I read in Bloomberg the other day that the purchasers of AAA-rated ABS bonds are currently demanding yields that are a full 2 % (200 basis points!) higher than they were simply eight months back. The cravings for ABS bonds is clearly subsiding.
In addition, Wall Street subprime business lenders are likewise being required to lower their loan-to-value ratios. For example, Silverhill Financial just recently reduced its high-LTV program from 97 % to simply 85 % loan-to-value.
These modifications are a caution that the market for ABS bonds may be drying up. If Bayview, Lehman Brothers and the rest of the Wall Street subprime industrial loan providers suddenly dial back their programs, the relatively tiny hard money industrial loaning business will be not able to deal with the overflow. Subprime business mortgage lending could mainly dry up, and it could occur really rapidly.
For that reason you need to inform the owner of your favorite coffee bar and your auto body repair service individual that if they are ever going to aim to borrow versus their buildings, they much better do it now!