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December 22, 2008 – Comments (12)

I think what happens to commerical is going to be another big hit for the economyand it's ugly consequences will be fairly big in 2009.

CR has a great post on this.

The commercial and alt-A mortgages defaults will continue to seriously undermind the economy and create enormous uncertainty.

 

12 Comments – Post Your Own

#1) On December 22, 2008 at 4:57 PM, engstocker (< 20) wrote:

I couldn't agree more. Watching a video posted by someone earlier had a chart showing there are even more Alt-A and Option arm mortgages out there than the subprime mortages. If the default rates on these are anywhere near where the subrimes are, then I say welcome to the next Great Depression. The only question I have is how long the deflation will last and when/if inflation from all the money printing that the Obama administration will bring will occur. I have little doubt we will continue deflating (which will be a good thing in the long run), I just hope we can ward of massive inflation that could follow.

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#2) On December 22, 2008 at 5:29 PM, outoffocus (22.85) wrote:

The only question I have is how long the deflation will last and when/if inflation from all the money printing that the Obama administration will bring will occur

I hate to burst you bubble, so to speak, but its the inflation that the BUSH administration will bring.  Please check your facts on this one.  The Fed has printed more money in 2008 than in any time in history.  The Fed has printed 1 Trillion dollars (with a T) since SEPTEMBER.  So don't be so quick in giving Obama all the glory because most of the credit goes to our current comrade in chief.

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#3) On December 22, 2008 at 11:11 PM, Gronkt (38.34) wrote:

There should be some kind of moratorium on blaming past, current, and future presidents for economic problems.  So far I've heard from various internet postings that the current recession is either the fault of Bill Clinton, George W., or Barack Obama.  I think most people are giving these guys way too much credit.  

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#4) On December 23, 2008 at 2:58 AM, starbucks4ever (97.42) wrote:

dwot,

Am I correct in assuming that the two numbers - $23 billion and 7% - mean that the total debt on all commercial properties in the US is about $330 bln? If so, then either the total value of commercial RE is much lower than I thought, or the leverage is much smaller than the leverage on residential RE... 

outoffocus, 

Comrade Obama was not the only student in the Greenspan Ponzi School, but he graduated with all A's.

 

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#5) On December 23, 2008 at 4:32 AM, Buckaneer (< 20) wrote:

"The only question I have is how long the deflation will last and when/if inflation from all the money printing that the Obama administration will bring will occur."

 I'm agreeing with the previous poster in stating that you are assigning responsibility to Obama, before he is prez. It's under the current admin that rates have been lowered to within 25 basic points of zero. So, how can you state that it's Obama who will be printing money? Look, I'm not even bashing Bush, I'm just asking you to see beyond your desire to attack a prez-elect before he's even had a chance to prove himself as prez.

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#6) On December 23, 2008 at 8:53 AM, engstocker (< 20) wrote:

Outoffocus and Buckaneer

I 100% agree that president Bush's administration is responsible for printing massive amounts of cash. That is an undisputable fact. But look back at this post in 2 years my friends and you'll see just how minuscule that is compared to what Obama and the Democrats are about to unleash. "I think we need to spread the wealth around" sound familiar.

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#7) On December 23, 2008 at 9:07 AM, outoffocus (22.85) wrote:

Engstocker,

I would agree with you only if Obama were not giving Paul Volcker a cabinet position.

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#8) On December 23, 2008 at 11:59 AM, eldemonio (98.90) wrote:

But look back at this post in 2 years my friends and you'll see just how minuscule that is compared to what Obama and the Democrats are about to unleash.

 McCain, is that you?  Playing the blame game in this situation does no good.  If you think that one person or one party is culpable for the mess we are in, or about to encounter, you are a dumbass.  

Finger pointing is this situation is impossible for one simple reason - we don't have enough flocking fingers to accomodate everyone who deserves to be blamed.  

 

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#9) On December 23, 2008 at 12:47 PM, djemonk (< 20) wrote:

I think it's a little early to be indicting Obama as the architect of the Great Depression 2 given that he's been in office for negative one month now.

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#10) On December 23, 2008 at 2:15 PM, starbucks4ever (97.42) wrote:

In order to determine that the beef is stale, you don't have to eat the entire carcass...

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#11) On December 25, 2008 at 11:29 PM, bbbengggriffin (23.78) wrote:

Dwot, as usual, is spot on.

This link provides a graphical comparison of Alt-A vs. Subprime in terms of monthly volume of resets.

http://img81.imageshack.us/img81/442/imfresetsng3.jpg  

 

The graph suggests that residential foreclosure pressure resulting from rate resets is at a relative low, but will begin to increase again in mid 09 and eventually reach a level greater than that due to subprime resets.

That in itself would be bad news.  What cannot be reflected in the graph is the potential for greater severity in ALT-A resets.  Although typically made to borrowers with higher credit scores, ALT-A loan resets may trigger more severe losses for several reasons:

Option Arm (a type of Alt-A which is separated in the graph) resets are more severe than subprime resets in most cases.  Subprime loans usually reset no more than 3% higher than the start rate on the initial reset, and typically cannot increase more than 1% each 6 month period following.  While this is a large payment shock, it may be dwarfed by the reset of an Option Arm.  An Option Arm not only resets from a payment rate calculated on rates as low as 1 % on the original principal balance to the full margin plus index (usually COSI, MTA, or LIBOR) rate, without limit, which could be up to a 6% difference or possibly more... but the new payment also must cover the principal increase resuling from borrowers paying an amount lower than the interest accruing for several years.

The bulk of Alt-A Arm resets were originated later than the bulk of Subprime, so are based on more inflated values.

Alt-A loans typically have higher loan to value ratios, a higher percentage have less documentation of income and assets, and a lower percentage are primary residences.

All of these factors suggest more severe losses.

 

Oh, and Zloj.  You really put the 4ss in carc4ss.

 

 

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#12) On December 31, 2008 at 4:51 PM, jgseattle (35.31) wrote:

I agree CR is in trouble, and mall operators are in trouble, GGP on the brink of BK and MAC soon behind it. 

In Seattle with WaMu putting 700,000 sqft of space on the market it will be interesting to see what rents end up at. (JPM Chase was able to walk away from these lease and the landlords are now in the BK of WaMu parents company, or the FDIC not sure)

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