A fixed income specialist at Leham Brothers has warned that subprime lending problems could cause ripple effects throughout the housing market - more news that homeowners and real estate investors certainly don’t want to hear. According to a Yahoo! news article:

There is not enough evidence to indicate such a scenario is taking place, but the risk of a broader market impact is “very real,” Adam Topalian, fixed income strategist at Lehman Brothers, said at a dinner for investment professionals.

What experts will be watching is the behavior of lenders when $900 billion in adjustable rate mortgages reset over the next two years. Unfortunately, $650 billion of those loans is to high-risk borrowers.

From personal experience, and citing anecdotal evidence, I can say with certainty that commercial lenders are tightening up to the point where I don’t wish to deal with them. Residential mortgage lenders, on the other hand, are bound to be a bit more “forgiving” than their commercial brethren, but don’t expect any favors. Underwriting still looms over any deal, as your broker or banker will be all-too-willing to let you know if something goes wrong with your refinance.

Tropalian warns that “sharp pullback in lending could lead to a vicious spiral of continued housing price depreciation and defaults”. What’s that mean to homeowners and investors with solid credit? Unfortunately, it may mean that those with only so-so credit may have a big impact on your real estate portfolio or your primary asset. As a real estate investor myself, I’ve got my fingers crossed. Luckily, I have no need or desire to sell any properties over the next 3-5 years, but if you’re in a “must-sell” situation right now, or will be over the next year, you must certainly be watching this situation with a bit of trepidation…and if you think that the subprime lending problem is isolated in certain geographic areas, more bad news (sorry):

The strategist dismissed the notion that high-risk home loans were limited to only certain areas and neighborhoods and cited data that 60 percent of U.S. zip codes have between 25 percent and 75 percent subprime home borrowers

Tags: adjustable rate mortgages, real estate investors, subprime lending, subprime mortgages

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