Debt Recon May 7, 2011: How the borrowing terrain changed

A quick scan of the borrowing terrain reveals some interesting changes for borrowers.  How will you adapt?

WSJ and others reported The Dodd-Frank rule writing committees have been busy with over 3 million words drafted so far and the bureaucrats are less than half finished.  This should be titled the supplementary attorney full employment act because companies will spend millions in legal fees deciphering the code for financial regulation compliance.

The Economist had a great piece about how to keep your legal bills down.  Great background and prep for compliance with Dodd-Frank. and others reported that commercial real estate lenders are making more loans although still underwriting conservatively.  The M.B.A said commercial loan origination was up 44% in 2010 compared with 2009.  Wells Fargo and JP Morgan Chase are active with life companies also writing more deals.  Multi-Family is the preferred category right now with retail properties still out of favor.  Some hope for the most credit worthy commercial property owners facing loan maturities on high quality assets.

Banks are flush with cash and are now putting it to work in the form of loans and dividends to shareholders according to  With tight underwriting criteria and a shortage of qualifed borrowers, banks are returning capital to their owners.

Non-voting Fed member Thomas Hoenig gave a speech this week that included a plea for the Fed to raise rates soon to head off inflation and avoid an abrupt shock to the economy.  He’s been a lone wolf for a more hawkish policy.  Hindsight will tell.

MSNBC and others reported the U.S. is suing Deutsche Bank for more than $1 billion for mortgage fraud after it was discovered that an outside consultant’s reports on residential mortgage quality control were stuffed in closet and never opened.  About 1/3 of the 39,000 residential mortgages that the bank’s subsidiary, MortgageIT, Inc., approved have defaulted.  This is a shining example of the craziness in the residential lending market at the peak.  Of course the taxpayers guaranteed many of these loans through FHA.  Other lenders are in the crosshairs.

U.S. Treasury yields headed lower this week towards 3.20% for the ten-year due to soft data on the economy, a less than stellar report on unemployment,  a sharp decline in commodity pricing and the death of Bin Laden prompted a short term flight to safety in U.S. notes.  Borrowing costs may stay low for some time.

And the big news of the week was the unemployment report showing a net gain of about 244,000 jobs in April.  The Calculated Risk Blog had excellent commentary about how far the country is from the pre-recession employment levels.  About 7 million jobs must be replaced but the number of long-term unemployed (27 weeks or more) is stubbornly high.  They also make the point that there may be a structural component to unemployment that will prevent those jobs from returning.  Many unemployed lack the skills and education necessary to find new employment as their jobs have disappeared for good.  A soft labor market keeps a lid on the wage-price spiral and can keep borrowing rates low for an extended time.  Although a sluggish economy and erratic consumer spending can hold back companies from borrowing money for expansion or inventory.

See you next week for another sneak and peek at the borrowing terrain.


About Michael Shelton

Your Business Coach Facilitating Delegation and Work Group Engagement Michael Shelton has over twenty-five years of business and military accomplishments, including extensive experience with one of the largest, publicly traded real estate investment trusts (REIT). He is a qualified business coach with assignments in cross-functional work group management, strategic planning, unit leadership, joint venture acquisitions, executive education, mentoring, training and merger integration. Michael has accumulated best practices for building committed work groups from more than $4 billion of capital markets transactions and commercial property development. He served as a commissioned officer and helicopter pilot in the U.S. Army, and earned his MBA from The University of Arizona. Michael has served as a major conference panelist and is the author of Cash Flow Rich, Winning Ways to Evaluate and Finance Real Estate. Today, he helps business owners get more work group engagement as President and CEO of Shelton Business Services, LLC in Scottsdale, Arizona. Disclaimer: I don't offer investment, legal or tax advice. Talk to your broker, accountant or lawyer for investment, tax and legal help. I might own stock in the companies I mention on-line. My posts, tweets and other on-line activity are my personal thoughts and don't represent my employer or company.
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