Leading into the current USA and world financial crisis many commercial builders and would be real estate investors used as much inexpensive debt financing as they possibly could get their hands on in order to construct or develop a plan to purchase or refinance properties. Most of those risky loans made their way into large trusts and pools of mortgages that were behind commercial mortgage-backed securities instruments (CMBS). Because of the steep declining prices and a fast weakening economy, vast amounts of borrowers found themselves in a world of economic certainty or maturity default.
There have been 463 Bank Failures from January 2008 through the 1st-3rd quarter of 2012. This is mainly due to the fact that banks are carrying large amounts of non-performing, under-performing or equity deficient loans that they are experiencing enormous pressure from banking regulators to increase capital. Because of the reluctance to run and take a loss on the books, financial banking institutions are often under highly pessimistic quarterly reporting pressure.
Sources: Federal Reserve, Foresight Analytics
Most types of lenders, who are not prepared and are not experts in managing different types of paper secured by commercial real estate, find themselves presented with the difficulties of what we call a control position, which will further increase and accelerate the unwanted selling of mortgages available on the market and depresses values and pricing even more.
Pricing and values are projected to continue to be below the intrinsic value due to the economic downturn for several years to come, excessive over-leveraged buyers and banks, will face stressed selling and forced liquidations.
The outcome of this whole mess is that purchasing these distressed debts will be a good idea when it can be fast done at low prices that are well below the average intrinsic value of the secured underlying collateral.
SilverLeaf Financial designs, identifies and quickly applies a seasoned underwriting management process to accurately predict pricing with the appropriate exit strategies.