News: National

Spending Plans Raise Concerns over Increasing Deficits, Risk of Inflation and Lack of Incentive for Sellers To Participate

Commercial real estate practitioners contacted by CoStar News expressed skepticism over announcements from the Federal Reserve Board and the U.S. Treasury in the past week over their plans to purchase or subsidize up to $2 trillion in mortgage-related investments. Click here to read entire story.

Not Inclusive Enough
We think it's great that the government has come up with a plan to assist banks with public-private investment funds, instead of throwing more taxpayer money at them. But the Treasury plan would cover only $500 billion to $1 trillion of toxic mortgage assets. The overall problem is much larger - at least $2 trillion - which leaves a trillion dollars worth of problems unsolved.

This plan might make sense for our investors and us but it depends in part on the price of admission. If the minimum investment is $1 billion, then the government is clearly looking for larger fund management companies. There are other question marks as well… What are the rules of the game? How long will the process take? Will government involvement create too much bureaucracy and bog down the process? Right now Home Equity Partners is nimble, flexible and maneuverable. Maybe we need to stay that way.

The administration's plan is designed to help banks with large toxic mortgage pools, to stabilize them by getting these toxic assets off their books and injecting them with capital. But it may not help smaller banks that are in trouble, and it certainly won't help other private owners of mortgage assets. Most of the mortgage pools we're looking at in this market are not held by banks, but by private institutional funds, investment management companies and hedge funds. These players hold a tremendous inventory of troubled mortgage assets in Southern California; the bank plan won't change that landscape.

What this plan will do is establish a price for these toxic assets, and that's what this stagnant market needs to get moving. But it also could drive up the price if the investors overpay for bank assets because they can leverage their buying power with inexpensive government loans.

Chip Larson
President
Home Equity Partners
Carlsbad, CA
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