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Changing face of the mortgage market.

Like the Phoenix that rose from the ashes, an innovative concept in capitalization and mortgage financing is catching fire and taking off, out of the flames of a depressed real estate market.

The real estate market is not what it used to be; that's an understatement. If you had moved out of the country just six years ago in 1986, using some of the capital gains that you had made in the 1980's and returned today, you would find some major changes had taken place. Many of the companies and principals that you recognized as established leaders have either disappeared or are shadows of their former selves. Many bankers that you knew are out of a job. The spiralling craze of construction and co-op conversion, supported by souring resale values, finally glutted a once limitless demand and values have fallen. Cooperative is almost a dirty word to some bankers nowadays.

Today the world is unrecognizable compared to yesteryear. The visual effects reveal the symptom of the disease. Far fewer limousines can be found on the streets. Just take a look and compare the size of the yellow page directories from 1986 to 1992; amazingly it has been shrinking in size.

Businesses have either: Fled the city, are not in business or cannot afford to advertise anymore. Principals lucky enough to cash in and sell their properties before the valuations came tumbling down are sitting with their cash riding out this storm. Those others unable to obtain their required price and hold out are riding this wave as well, without the luxury of cash received from sales. We all hope, as in the game Monopoly, that the one who buys and holds the most properties wins. In that board game, when you land on a property before your opponent does and you are low on cash, you often must mortgage your other properties in order to raise enough capital to purchase new ones.

If you have deep enough pockets, then as in Monopoly, you will win in the long run. The basic principal of that game seems to apply to the real world. Wait for your tenants to pass go, they collect $200 and are able to pay you the rent that they owe you. The only problem will be if your tenants stop collecting their $200 because the company that they work for lays them off, moves away from New York or goes out of business.

Whose pockets are deep enough to weather all financial uncertainties? Unfortunately, due to tax law changes in 1986, stock market collapse, high unemployment rates, followed by dismal consumer confidence levels and lack of spending, real estate market valuations spiralled downward. Mortgages that were originated based upon yesterday's high values were becoming due and payable. Lenders would not replace these funds completely and in some cases not at all.

Those that would not extend demanded full payment, putting buildings into default and even foreclosure. Loan loss reserves of institutions had grappled their liquidity and finally the biggest banking failure in history had ensued.

There are entirely new industries, careers, titles and specializations all focusing on these new market conditions. Banks have large departments with names like: Asset recovery, "special asset" sales, auction sales, non-performing loans, Real Estate Owned, Disposition, Workout, extensions and of course foreclosure experts. These professionals work with small and even the largest property owners, like Olympia and York, in an effort to facilitate solutions, negotiate restructures, discounts and as a last resort, disposition. The last stop in the real estate problem pipeline is also one of the biggest new companies and property holders on the scene today, the Resolution Trust Corporation.

Legislative restrictions, potential tax law changes, all are uncertainties that can affect the real estate industry. These and issues such as asbestos, environmental impact studies and lead paint, all cause banks and insurance companies to be more & more conservative.

Here's a story that may sound and even feel familiar. A divorcee, as part of her divorce settlement, became the mortgagee of a Greenwich Village Manhattan apartment building.

She was living on the interest of this second mortgage which was 12 percent, and was making ends meet. As time went by and the economy deteriorated her trips to the mailbox each month became harrowing for her. No longer were her checks there on the first of the month, nor the eighth or 14th. This woman contacted me and asked me for help. I advised after analyzing the underlying security that rather than her praying with the mortgagor for the economy to turn around, she should consider selling her mortgage to someone with thicker skin and cash in before it was too late. I found a buyer for the mortgage, satisfying all parties and refinanced the first mortgage for the property owner at a lower rate.

So out of this mess comes some good news.

Interest rates are at their lowest levels in 15 years. Buyers may not be willing for years to pay those former market values for real estate, but there are buyers out there for your mortgage equity. Today, I have developed a following with mortgagees who call me with their performing and non performing mortgages to receive a quotation; they sell and cash in their mortgage receivables. Being associated with one of the most respected, highly regarded mortgage brokerage firms in the metropolitan area and maintaining close contact with over 60 lending institutions, getting the lowest possible rates and highest possible dollar amounts available for our real estate property owner clients, enables us to provide a completely new service which has surprised us with its unprecedented demand.

Not only do we arrange mortgage financing and purchase money mortgages for principals, when we help them buy and sell their buildings, they often have us cash them out of the mortgage paper that they are holding. Many people do not realize that a long term asset like a mortgage can be readily liquidated into cash, but today this is our newest and fastest growing division.

Sponsors sometimes must sell even their finest receivables in order to raise capital to satisfy debts and bills, to avoid embarrassing required disclosure to the attorney general's office should they become delinquent in the payment of maintenance and common charges. Many of our clients are sponsors that need money quickly. Obviously, it takes more time to find a buyer for property in this market, negotiate a price, obtain bank financing, and close a contract with attorneys, than it does to receive lump sum cash through Michael V. Coratolo & Associates. Inc. or from one of our mortgage purchasing clients who are looking for a required rate of return on their money, when buying a mortgage.

Since beginning this new specialization in the sale and disposition of mortgages and sponsor financing, we have even found a large following of buyers looking to purchase NON-performing or delinquent mortgages. They are not only interested in buying purchase and private money mortgages on single properties, but we now have investor buyers for pools of institutional performing and non performing mortgages from one million to one hundred million dollars.

This industry is changing daily. Real estate principals should contact a market expert to best advise and represent them when financing, refinancing, selling a mortgage or property, just as they wisely choose to be represented by council for important economic events. With 20 years of experience in this industry, having thrived in all market conditions, arranging the best financing packages for our real estate portfolio clients we are able to handle most real estate needs. Today could be the day for you to sell your mortgage and cash in your, perhaps uncertain, future mortgage interest income. Rest at night knowing your money is safely deposited in the bank.

Richard Liebman, noted real estate attorney with the law firm of Liebman & Liebman on Long Island remarked, "A mortgage is a long term asset, with a dollar value that diminishes annually. As not only an attorney but also a sponsor and mortgagee, there is a great need for a market leader like yourself and your firm to come in and buy and or originate the sale of mortgages from mortgagees whose cash flow requirements warrant the sale of their private mortgages. Even banks that are in the business of making loans need to recapitalize from time to time, not to mention non-performing loans which any holder thereof would be thrilled to sell at a discount. If you need cash, you should definitely consider selling your mortgage, just as I have done in the past, with your help."
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Title Annotation:evaluation of mortgage financing in response to depressed real estate market
Author:Lichtenstein, Andrew
Publication:Real Estate Weekly
Date:Nov 11, 1992
Previous Article:High-end sales bright spot in home market.
Next Article:New York and the international buyer.

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