Now raising intellectual capital
“Loans of concern” has the same ominous ring as the phrase “persons of interest” when uttered by law enforcement officials investigating a murder.
The corpse in this instance is the commercial real estate market, and Fitch Ratings has the latest indication of its morbid condition.
Fitch reports that it has added 432 commerical real estate loans totaling $5.2 billion to its designation of “Loans of Concern.” The 7 percent increase from June through August, means that $80.7 billion of U.S. commercial real estate loans have either deteriorated or defaulted — that is 17 percent of the total U.S. CMBS portfolio rated by Fitch.
Goldman Sachs, as I’ve pointed out before, has done a good job reducing its exposure to commerical mortgages by selling off potentially troublesome loans well ahead of the curve.
But it appears what’s left in Goldman’s commercial mortgage bin is all but untradeable, if not potenially toxic.
In late 2006, Goldman shrewdly began backing away from the residential mortgage market. With little fanfare, the firm began aggressively hedging its exposure to home loans, in particular mortgages to borrowers with shaky credit histories.
This savvy and somewhat stealthy strategy enabled Goldman to pawn off lots of its soon-to-be toxic mortgages and mortgage-backed securities on other institutions — forcing those foolhardy speculators to pay the price when the subprime market blew up.