Hunt for Yield: The Return of Risky Lending

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Oct. 15 (Bloomberg) –- Bloomberg’s Aleksandrs Rozens discusses commercial real estate and the credit markets. He speaks with Mark Crumpton on Bloomberg Television's "Bottom Line." (Source: Bloomberg)

Lending for loans on malls and office properties.


It is a hunt for yields.

What i found surprising is that it was so tremendous, the slice of all the mortgage debt that has been put together, it is matching 2007 levels.

That is the eve of the problems with the credit markets when the bubble burst.

We have a chart that we found.

We put two together -- put toget her some data.

Loans that allow borrowers to pay interest, those accounted for a large slice of what we saw this summer in terms of commercial real estate lending.

You go back to 211 for.

-- 2004. what are we looking at as the go-ahead?

We see the use of this interest-only loan type coming into the system for commercial real estate.

That all ends in 2008 and 2009 when lehman fails and the credit market seizes up.

Now, people want yields.

They are willing to allow borrowers to pay interest only or partial interest.

Some of that might be paid down in a balloon form.

You never really pay it down the way you would a presidential mortgage.

It refinances every 5-7 years.

The paper that is coming to you now is a paper that was originated in 2005-2007. they may not be able to put down extra money so they can only afford that interest-only loan.

The issuance of bonds, your research so's -- shows it is on track to be at 2012 levels.

What is fueling that?

Until last year, you're getting 1.6% on 10 year treasury money.

This year, about 2.6% or 2.7%. if i am a fund manager, i get paid for extra returns.

I will put it to work in assets such as high-yield debt.

That chart really troubling story.

Look at that drop.

That is what happened after lehman failed.

In 2008, they failed and the credit markets seized up.

We were not underwriting loans.

Nobody wanted to buy.

That is behind that drop.

Now, people are coming back because they realize they need to get extra yield.

Is that why we are seeing investors put more money into real estate?

That is the extra yield part of it.

Also, the economy has improved since 2008. that income is actually a good return for an investor -- if you play in treasuries, you earn a lot less money.

Are we at risk of another bubble?

I wonder if that is the case.

Part of me says no because we are still working out some of our problem debt.

The loan officer that is underwriting that loan today for a new property, they probably are working out of a medic debt.

-- problematic debt.

In some ways, this i/o lending might be kicking the can.

You will have a balloon payment due.

The only way you can afford to borrow is an i/o loan.

Alex rosens joining me in

This text has been automatically generated. It may not be 100% accurate.


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