The Window Is Closing for Subprime Commercial Borrowers!

The Window Is Closing for Subprime Commercial Debtors!

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Inform your auto repair work mechanic, your favorite restaurant owner, and the owner of your pool cleaning service that it’s last call for subprime commercial loans.
I anticipate that the subprime commercial home loan market will shrink by 75 % within 6 months. If these small company owners are ever going to pull some equity from their commercial structures to tide them through the coming recession, it might be too late if they don’t apply in the next few weeks.

The manner in which Wall Street lenders, like Bayview Financial (a fine company and buddies of ours), raise their lending capital is to securitize their subprime business loans. They put the loans in a big pool. They designate the swimming pool of loans to a trust. The trust problems bonds backed by the loans in the trust.

Then investment lenders offer these bonds into the Asset-Backed Securities (ABS) market. In addition to subprime business loans, credit card debt and car loans are also commonly sold as ABS bonds.

The problem is that the buyers of these ABS bonds are now needing massively higher yields. I read in Bloomberg the other day that the buyers of AAA-rated ABS bonds are presently requiring yields that are a complete 2 % (200 basis points!) higher than they were just eight months ago. The appetite for ABS bonds is plainly waning.

In addition, Wall Street subprime industrial lenders are likewise being forced to lower their loan-to-value ratios. For instance, Silverhill Financial just recently reduced its high-LTV program from 97 % to simply 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 loan providers unexpectedly call back their programs, the reasonably tiny difficult money business lending companies will be not able to handle the overflow. Subprime industrial mortgage lending could mostly dry up, and it might happen very rapidly.

Therefore you have to inform the owner of your favorite cafe and your car body repair man that if they are ever going to attempt to borrow versus their buildings, they much better do it now!