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The Window Is Closing For Subprime Commercial Borrowers!

Tell your automobile repair mechanic, your favorite cafe owner, and the owner of your pool cleaning company that it's last call for subprime industrial loans. I predict that the subprime commercial home mortgage market may reduce by 75% within half a year. It might be too late if they don't apply next couple weeks, if these small enterprises are actually likely to draw some equity out of their industrial houses to hold them through the coming recession.

The way that Wall Street creditors, like Bayview Financial (a fine firm and good friends of ours), increase their lending capital is always to securitize their subprime commercial loans. They put the loans in a large pool. They assign the share of loans to a trust. The trust dilemmas bonds guaranteed by the loans in the trust.

Then investment lenders sell these bonds return to site into the Asset-Backed Securities (ABS) market. In addition to subprime commercial loans, car loans and credit card debt may also be usually sold as ABS ties.

The problem is that the consumers of these ABS ties are now demanding hugely higher yields. I read in Bloomberg recently that the consumers of AAA-rated ABS securities are currently demanding yields that are the full a day later (200 basis points!) higher than they certainly were only seven months before. The hunger for ABS bonds is clearly waning.

In addition, Wall Street subprime commercial lenders may also be being forced to lower their loan-to-value ratios. For example, its high-LTV program was recently lowered by Silverhill Financial from 97% to only 85% loan-to-value.

These changes certainly are a warning that industry for ABS bonds might be drying up. If Bayview, Lehman Brothers and the rest of the Wall Street subprime commercial creditors suddenly call back their programs, the relatively tiny hard money commercial lending companies will soon be unable to handle the overflow. Subprime commercial mortgage lending could mostly run dry, and it could happen very quickly.

So you need certainly to tell the master of your auto body and your preferred coffee shop repair person that if they're actually going to attempt to borrow against their structures, they better do it now!