Latest Prophecy Commentary
Meltdown far from over, new mortgage crisis looms; "We're probably in the first inning of the commercial mortgage problem"
As many analysts believe, there is little doubt that the global economic slowdown is due mainly to the residential mortgage crash. Some believe we are in the middle of this crash while others can see the light at the end of the tunnel predicting that a turnaround may be in order possibly as soon as mid-2009.
Unfortunately, it's probably going to get a lot worse before it finally gets better. Analysts are now predicting that a new wave of disastrous mortgage defaults and foreclosures are coming in the very near future... this time by way of commercial market. According to industry experts, the bottom is about to fall out from under shopping malls, hotels, and a host of other businesses, and "we're probably in the first inning of the commercial mortgage problem" says Scott Tross, a real estate lawyer with Herrick Feinstein in New Jersey. Below is an explanation of how this problem was created, and if true, the devastating impact it will have over the next 6 to 18 months.
Article
Black Friday's retail shoppers hunting for holiday bargains won't be enough to
stave off what's likely to become the next economic crisis. Malls from
Michigan to Georgia are entering foreclosure, commercial victims of the same
events poisoning the housing market.
Hotels in Tucson, Ariz., and Hilton Head, S.C., also are about to default on their mortgages.
That pace is expected to quicken. The number of late payments and defaults will double, if not triple, by the end of next year, according to analysts from Fitch Ratings Ltd., which evaluates companies' credit.
"We're probably in the first inning of the commercial mortgage problem," said Scott Tross, a real estate lawyer with Herrick Feinstein in New Jersey.
That's bad news for more than just property owners. When businesses go dark, employees lose jobs. Towns lose tax revenue. School budgets and social services feel the pinch.
Companies have survived plenty of downturns, but economists see this one playing out like never before. In the past, when businesses hit rough patches, owners negotiated with banks or refinanced their loans.
But many banks no longer hold the loans they made. Over the past decade, banks have increasingly bundled mortgages and sold them to investors. Pension funds, insurance companies, and hedge funds bought the seemingly safe securities and are now bracing for losses that could ripple through the financial system.
"It's a toxic drug and nobody knows how bad it's going to be," said Paul Miller, an analyst with Friedman, Billings, Ramsey, who was among the first to sound alarm bells in the residential market.
Unlike home mortgages, businesses don't pay their loans over 30 years. Commercial mortgages are usually written for five, seven or 10 years with big payments due at the end. About $20 billion will be due next year, covering everything from office and condo complexes to hotels and malls.
The retail outlook is particularly bad. Circuit City and Linens 'n Things have sought bankruptcy protection. Home Depot, Sears, Ann Taylor and Foot Locker are closing stores.
Those retailers typically were paying rent that was expected to cover mortgage payments. When those $20 billion in mortgages come due next year - 2010 and 2011 totals are projected to be even higher - many property owners won't have the money. AP
To read the complete article, click on AP.
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