Yes, the sub-prime debacle has everyone from New York real estate investors to Manhattan residents wondering what’s kudapoker next.
A Fannie Mae report revealed that 30% of borrowers whose loans were packaged and sold to foreign buyers and pension funds failed to pay back the money they borrowed. While not all of the debt was defaulted on, many investors were effectively wiped out by falling property values.
The most obvious effect has been that these loans no longer enjoy the low interest rates and extended loan periods that gave people the ability to purchase more home than they might otherwise have.
However, the sheer implications extend far beyond the property market. Many foreign borrowers who were looking to park their money in places where it would produce historically low returns now find themselves owning rental properties that draw almost no interest from tenants and that require more money from their pockets each month than they can afford to pay.
This means that the money once parked in areas that would prove perfectly safe for equity hasn’t performed and continues to sit in stagnant capital markets. This capital will in time need to be recycled into the US economy, a process that may take many years.
One of the biggest losers in this litigation so far has been the securities industry. TheSource.com Report findings are the latest in a series of substantial lawsuits by brokers against lenders – beginning with Bear Stearns – which have lost billions because of loan packages that have turned out to be worse than people thought. The report found that borrowers were shocked when the loans went sour not only because they lost money on their investments but also because their lenders doubled-up as the banks and were thus at the mercy of Wall Street.
More requirements for loan qualifications could lead to a slower recovery in the New York apartment market, which has been one of the most resilient of the city’s residential markets. One broker said that many of the industry’s high-end clients have told him that they refuse to rent out their apartments because of the uncertainty. A lack of buyers could also delay a recovery in the area’s apartment market.
The Source.com Claims
Mortgage brokers, bankers and bankers, the New York real estate industry’s biggest unions, have been among the most aggressively defend the new litigation against lenders, which means that even the city’s financial institutions are under intense political scrutiny. State politicians have been calling for a criminal investigation of lenders, who as a result are now actively soliciting a Manhattan criminal probe.
However, some analysts think that it is more likely that lenders will lose fewer cases but in a few instances they may be forced to do so on their own. Regardless, major US banks are taking even more of a beating in the real estate market with the tremendous number of foreclosures they’re bringing to their various markets.
On a last note, some robberies differ – in the NYC real estate the gloves were on the side of the burglars, while in Bed-Stuy the cops were initially too Situation guiding. So of course, even burglars will understand the law better than, say the apartment building owner, and they may find themselves quickly free after a heist of apartments.