Thursday, January 28, 2010

Bureau of Misinformation

Someone took a reasonably accurate article from the WSJ and turned it into this diatribe.

First off, homeowner's turning in their keys versus CRE owners turning in their keys.
A) CRE owners do not turn in their keys because they are cash flowing every month but are underwater. Instead, they turn them in because they lost tenants (or never had them) and cannot afford to pay the mortgage. Complain about pro forma underwriting all you want, right here.

Apparently, you're comparing this to a situation where a homeowner is underwater, can still afford the payments, but walks away from a legal contract - likely with recourse to the borrower (unlike the CRE loan). If I, personally, had made the loan to this guy, I'd drill his knees. If, however, he lost his job, had a mortgage that he never could afford in the first place, well, then, he should turn in his keys just like the horrible CMBS borrower you describe.

B) Further, the CRE borrower in a CMBS deal, signed a non-recourse loan doc - the lender agreed that the borrower could turn in the keys with no credit impact. The poor pitiful homeowner signed an agreement saying they would be held liable if they stopped payments. Bad stuff happens to everyone, but you should feel bad when you go back on your word, even if you feel like it was a bit beyond your control. Bring back debtor prisons and stop writing non-recourse CRE loans.

Second, how did Lehman enter into the story? Ok - Derivatives - where did that come into play?

After blaming CMBS repeatedly, the author does admit to not understanding the structure of CMBS deals, but then he keeps doing it in the follow-up comments.

Fannie and Freddie - they always bought most of the Multifamily collateral of deals. This shouldn't be surprising - maybe unknown, but not surprising. The surprising part is that a transitional loan like this was dropped into the Group 2. Still, I don't see them losing money related to the A1A, even on WBCMT 2007-C30.

Speyer not paying the price (author + commenters)? The poor tenants are the only ones to suffer (commenter)? Let's use the authors numbers (which do not necessarily reflect the truth or current investment sizes). The equity owners are losing $224 million dollars. That is not a big deal? They lost 100% of their investment - I've never lost 100% of any investment, and I've never lost any amount of money with a million after it. Seems like a big deal. Tishman Speyer overpaid for Archstone and numerous property investments, are extremely overlevered... Yeah, I think they're pretty big losers here.

Pension plans losing money - oh, the horror. Don't blame Tishman or Blackrock for this, blame the portfolio manager at the pension for investing in mezzanine loans on a property, in a deal that was hard to make work when they were marketing it. I don't have a crystal ball, and I make a lot of mistakes, but I did not buy any related paper to this deal back when it was originally done (I have bought some over the last 12 months, though, at pretty steep discounts - the see saw is broken).

My favorite part is that the google ad that popped up right above the comments was a ad that quoted "A Bad Credit Score is 600 or Below". I think the official ranking of 600 below is "Shitty", and "Bad" starts somewhere north of 600. It had a little pile of gold if your credit score is 699 - really? Nothing wrong with a 699 credit score, but the pile of gold probably should be a pile of plastic to more accurately reflect your typical American with a 699 credit score.

1 comment:

crabsofsteel said...

I think the author mentioned Lehman as they may have been underwriters of one of the five deals the Stuy Town loan went into.

The point of the article, I think, was that FN & FH were dopes for lending $3BB to the senior borrowers. Now, using taxpayer money, they are incentivized to once again loan as much money as possible to a new buyer since it pays off their previous bad lending at par. I like to call it "the CMBS circle of life".

Looking at WBCMT 07-C30, something like 35% of the pool is not covering debt service. You also know that Stuy Town is 19% of the pool and a big hit is coming. I would be looking for an exit strategy if I owned the multifamily bond in this deal too.