The subprime lending fallout is occurring and it will be with the real estate community for the next couple of years. A previous post showed the Top 10 Markets With Highest Mortgage Risk but a great analysis by Michael Cook at Bloodhound Blog shows how it affects many different markets and funds, and why a turnaround of the real estate industry in markets with heavy subprime penetration will not be occurring anytime soon.
When the low creditworthy borrower applies for a subprime loan, many of the intermediaries no longer exist. Even if they try to go to a mortgage broker, they will be hard pressed to find a lender. If they do find a lender, this lender will have trouble moving the loan to an investment bank. Investors, who have been burned by heavy defaults (i.e. Bear Stearns Hedge Funds), will not be looking to buy high yield bonds backed by subprime loans. Additionally, those who are looking will expect to pay deep discounts. Read the rest at Bloodhound Blog.
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