Mike Fratantoni, senior economist with the Mortgage Bankers Association, said there would be a greater risk to the housing market if defaults were rising across the board, noting that so far the rise in borrowers who are late on mortgage payments is still mostly in the subprime sector. It makes sense there would be some retrenchment." In the past few years there's been an explosion in mortgage credit. "But I think there is going to be an impact on home purchases, even if it's hard to quantify at the moment. "It's not like subprime loans are going to go away completely - it won't be anything that drastic," said George. If those buyers get squeezed out, that's bound to be felt throughout the real estate market, according to experts, although George, McMahon and others say it's tough to quantify by how much. The trade group estimated that about 17 percent of home purchases are now made using subprime loans. Officials with Mortgage Bankers Association also argue the impact will be limited. "Given the slowdown overall, it'll have a bigger impact than if we were still at record levels," he said of the rise in problems with subprime loans. But he said whatever hard-to-assess impact there is will be more pronounced given the slowdown in home sales over the last year. But it will mean less money to buy homes."ĭavid Berson, chief economist of mortgage financing firm Fannie Mae ( Charts), said there will be a negative impact on the overall home buying market, though he sees the impact as limited. "Maybe it's a cohort that shouldn't be borrowing in the first place. "At the margins what this is doing is making mortgage credit less accessible to some people," said Bose George, an analyst with Keefe, Bruyette & Woods who follows New Century and other subprime lenders. McMahon and other experts say either move is likely to stop some potential home buyers from getting the financing they need to buy a home - money they might have been able to get in recent years. "Investors in lower-rated (mortgage securities) will demand higher yields, or alternately they'll pay less for the securities, which will force the underwriters of this product to demand higher quality mortgage loans." "Market forces in general will exert discipline on the process," said Sandler O'Neill analyst Mike McMahon, who follows the nation's largest mortgage lender Countrywide Financial ( Charts) along with others in the field. Some experts estimate that rates for subprime mortgage loans could rise a half to three-quarters of a percentage point because of the higher default rates, and that could top a full percentage point if the default problem gets worse. Instead, they package them with other loans of similar quality and sell them as securities, providing cash to make additional loans. That's because most lenders don't hang onto their mortgage loans. The problems with subprime loans are likely to lead to problems for many potential home buyers with less than top credit ratings. That news sent its shares tumbling by more than a third on Thursday, and hit lenders throughout the subprime sector.īeyond whatever problem the rising defaults in the subprime sector might cause to those lenders and their investors, the news was a setback for the struggling real estate market, according to experts in the field. But Vitner added that most office renters aren’t jumping in just yet.And lender New Century Financial ( Charts), which specializes in subprime loans, announced it would have to restate results for 2006 to account for losses on defaulted loans it would be required to repurchase. If you’re a renter, you might be able to get a better deal on space right now. “We’re very much in the early innings of this.” Plus, when they refinance, they’ll do so at higher interest rates, said Mark Vitner, chief economist at Piedmont Crescent Capital. “There’s a lot of skepticism and uncertainty that drives down the ability to get debt financing if you’re an office owner,” he said, adding that even more office building owners are likely to miss payments in the months ahead. If you own an office building, the bank holding your loan probably doesn’t like that uncertainty, per Kevin Fagan at Moody’s Analytics. If the last few years have taught us anything, it’s that it’s really hard to know if and when more people will come back to offices. The company reports that in May, more than 3.38% of commercial office loans are seriously delinquent - that’s up from a year ago.Īnd the outlook for office building owners might get worse before it gets better. For the past 18 months or so, there’s been a steady drip-drip of reporting on how work from home is hurting commercial office space.Īnd we just got another data point about just how badly: More owners of office properties are delinquent on their loans, according to new data from the real estate analytics firm Trepp.
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