Yesterday while home for lunch I caught a snippet of Sheila Blair on CNBC saying that by Q3 40% of commercial borrowers would be underwater adversly affecting over 4,000 banks (mostly smaller community banks) nationwide.

The future of the commercial market does not look good and hasn't for some time.

Conflicting reports on the status of the commercial markets are what I have been reading. I'd be nervous for note holders of non owner occupied office space. Some point to gloom & doom, others point to bright spots.

Big huge deals, $1-5B and above, are usualy 5-7 year contracts with 0.25% of loan balance quarterly pay plus interest. The primary source of repayment is refinance at the end of the term. A lead bank will structure the deal, then farm it out to smaller entities in $1-2MM (M=1,000, MM=million) chunks. Some of these are marketed through the National Shared Credits (NSC) program. I've bought a number of these, and have subsequently sold all but 2. They were good performers 2 years ago. Not so much today. These are the "option arms" of the commercial world. Many companies are doing well enough. some are not.

Most commercial real estate loans in the $250M-10MM ranges are notes with defined loan terms of 10-15 years with amortizations as long as 30 years. I'm not so worried on these, as these loans are generally based on sound lending principals and a realistic repayment term. They don't rely on a refinance in 5-7 years to pay the note off, they rely on cash flow.

The NSC loans to companies that are maturing here shortly may have an issue getting refinance money, especially if the financials aren't so hot. This is where a portion of these commercial loan failures will come from. The shorter time horizons don't allow clients the ability to dig themselves out of a hole from poor financial performance towards the end of their loan term. Refinance risk is higher than the longer term amortizing loans. The NSC credits almost qualify as "evergreen" loans, where the balances never really decrease, and they may actually increase throughout time. I see a correlation between home owners who pull equity out of their homes constantly over time, and the NSC type credits.

For Ma and Pa Kettle, they are getting less on their CD's, but that is primarily related to the current market rate conditions. Their mortgage rates are lower now than 10 years ago. If they overdraft their accounts, sure they'll pay more, but in a lot of ways consumers have really been spared additional costs. Companies are seeing the biggest hits with decreased earnings credit allowances and increased per item fees. Even then, most banks have not yet passed all of these costs accrued to their depositors. That will be recouped over time. Shareholders of these stocks are feeling it though.

Good stuff Andy.

Interesting thread. I just read a story on Yahoo that appears relevent to the disscuion at hand;

http://realestate.yahoo.com/promo/americas-most-overvalued-cities

This may be nothing more than opinion, but the list is heavy on PNW cities.

We took a few hits on the Bellingham properties our bank was financing, so that correction in value up there of 21% is about right. To give you an idea of how quickly values were escalating at one time, we helped a developer build a number of homes, 30+, in a subdivision. One home originally appraised for $440M prior to contruction in 2004. At completing 6 months later, the home was valued at just over $510M, and it sold for $530M. Crazy, and that home was on a .25 acre lot, no view, in a McMansion development.

Good stuff indeed. Thanks for your insight.

12/31/2013 is when that ends. The TAGP, transaction account guarantee program, that give unlimited FDIC insurance on business checking accounts and a few others, ends 6/30/2010.

Will there be any sort of account protection after these programs are closed out?

FDIC insurance will likely stay at the $250M amount. It is easy to structure accounts to gain additional FDIC insurance at a single bank where a couple could easily insure upwards of $2MM if they have a few kids, and still retain complete control of the money.

CDAR's is a program available for CD investors. Plain vanilla CD's with about 0.15% less return, but each bank is limited to $20-50MM in total participation. Find this program at your local community bank.

You could also purchase collateralization if you are a major client at your bank. If you have a few million on deposit, or a few million on deposit and a few million in loans, you should have no issue getting this for 0.15-20% rate reduction at a local community bank. Just finished up collateralizing deposits for 3 clients doing this. They all wanted to stay at 1 bank and not go through the hassles of account structuring.

Those are your three options.

Put my house on the market right after the first of the year. I interviewed a number of realtors. The one I selected priced the house right and it was sold in a day short of two weeks. Other homes across the street have been on the market for months; but they are probably unrealisticly priced.

You have to be real and not live in the past. It is worth what it is worth today and that is it. Tough for people who have very little equity. Fortunately I resisted the urge to sell the house at the height of the market and buy another one. Been in it for 19 years, but had to buy it a second time from the ex; but all worked out.

I am buying a home in Post Fall Idaho where my wife and I will retire. The wife just retired and I will work until the end of July or August and go myself. Prices in Idaho are really low compared to out here. Amazing how much house you can buy for less then $250K. Thought about waiting to see how much lower the prices get; but I am worried about interest rates taking a jump. I hope to lock in around 4.75 on Tuesday. Looking forward to my tax credit.

I told the wife she better really be happy with this place because we will live in it for at least the next 10 years. It is going to be a change for me as I am used to having property and all my toys parked in the shop. No room for toys at the new place and now I will have to store the boat. On the plus side I can mow the new yard in 45 minutes as opposed to the current yard at 3 hours.

Good read on the banking stuff. Good luck Rocket Red on the sale of your place.

The following reminds me of what's going on in our financial institution, banks, real estate, Wall Street and te entire cabal.



Dear Friend,

I am Mr Wei Ming, Principal Assurance manager for the Huaxia Bank in China. I am getting in touch with you regarding the estate of Gavin Stuart and an investment placed under our banks management 7 years ago. I would respectfully request that you keep the contents of this mail confidential and respect the integrity of the information you come by as a result of this mail. I contact you independently and no one is informed of this communication.

In 2001, the subject matter; Gavin came to our bank to engage in business discussions with our private banking division. He informed us that he had a financial portfolio of 8.35 million UnitedStates dollars, which he wished to have us invest on his behalf. Based on my advice, we spun the money around various opportunities and made attractive margins for our first months of operation, the accrued profit and interest stood at this point at over 10 million United States Dollars. In mid 2003, he instructed that the principal sum (8.35M) be liquidated because he needed to make an urgent investment requiring cash payments in Hong Kong and China. We got in touch with a specialist bank in Hong Kong, the Guangdong Development Bank (GDB) who agreed to receive this money for a fee and make cash available to Gavin. However Guangdong Development Bank got in touch with us only last year that this money has not been claimed. On further enquiries we found out that Gavin was involved in an accident in Mainland China, which means he died intestate and had no next of kin.

What I propose is that since I have exclusive access to his file, you will be made the beneficiary of these funds. My bank will contact you informing you that money has been willed to you. On verification, which will be the details I make available to my bank, my bank will instruct GDB to make payments to you. You do not have to have known him. I know this might be a bit heavy for you but please trust me on this. For all your troubles I propose that we split the money in half. In the banking circle this happens every time. The other option is that the money will revert back to the state.

Nobody is getting hurt; this is a lifetime opportunity for us. I hold the KEY to these funds, and as a Chinese National we see so much cash and funds being re-assigned daily. I would want us to keep communication for now strictly by my chinese email. Please, again, note I am a family man; I have a wife and children. I send you this mail not without a measure of fear as to the consequences, but I know within me that nothing ventured is nothing gained and that success and riches never come easy or on a platter of gold. This is one truth I have learnt from my private banking clients. Do not betray my confidence. If we can be of one accord, we should act swiftly on this. Please pardon my writing mistakes and get back to me immediately.

I await your response.

Mr Wei Ming

JLH, you're missin' the boat on this one.

JLH is so used to spewing that he never takes the time to learn.

Here is the article that was on the CNBC site yesterday.

http://www.cnbc.com/id/35392686/site/14081545

Debt restructure, yawn.

It would be nice to see them get caught for something really evil, like funding Al Queda or the Taliban. Then maybe they would go away. They'll shrug that off and be back in business in a few days.

I remain teachable and solicit advise when needed from people I know and trust. Period!

This whole crisis is the results of nothing but a big fat scam. A scam is a scam, is a scam. The bank robbery or "mortgage crisis," was an inside job, perpetrated by thieves, and netting them Trillions of tax payer dollars. This so called "mortgage crisis" (scam) was a collaborative actions more blatant and corrupt than all of the Magoo's of Africa, or the Mr. Wei Ming's of China's scams put together, and multiplied by 1,000,000. I posted it as a reality check, for those that want to rationalize, legitimize, intellectualize and justify the "Mortgage (scam ) crisis" as something innocent or makes sense. Well excuse me if I don't drink the Koolaid.

I'm not blaming little guy's as yourself, because you're just another paper pushing lackey with few clues, and probably up to your neck in debt to the bank. Having about as much clot in the scheme of things, as an indentured servant. BTW, your feelings of superiority doesn't apply, nor am I impressed with such an overture. I know better that to be a stooge for someones needy, self serving, inflated ego, combined with a holier than thou, hyperbole feeling of self importance.

The latest "Fox News Polls" are indicating that the majority of American's feel that what "Bankers" and financial institutions need most, is a little edgumacation from the woody end of a 2 X 4.

You been taking lesson from Big Stick on scriblin'?

While I agree with your statement Dogfish it's been just this kind of attitude that has let them get away with deals like this for so long. That, and the fact that the Treasury and the Fed are riddled with their former employees.

This story has been out for a few weeks now. CNBC is behind the curve as usual and printed a more sanitized version of events. What people should be asking themselves is what other governments has Goldman and JPMorgan sucked into this debt trap? Rumors around that Goldman has done the same thing for England. How about our government? Would we even know? All the more reason to demand the passing of HR1207 and SB604 and audit the federal reserve. As GAO Fed audit rules stand now the Fed could be secretly propping up Greece through their central bank or the ECB and we wouldn't know.

Sure, it'd be great to find out that GS was funding the Taliban (ironically enough, the Pentagon already does that indirectly BTW) so the masses would have something they could understand. Shouldn't matter, the crimes this syndicate have committed to date warrant more than a few arrests now.

"The bank robbery or "mortgage crisis," was an inside job, perpetrated by thieves, and netting them Trillions of tax payer dollars. "

The largest robbery was Iraq. So we've had the "illegal war" the "banking crisis", the "energy crisis", the "Oil crisis", "natural gas"........ what other robberies took place under the former administration?