Pair of Mortgage Deals Dissuade Recession Fears
Two recent transactions have put a hole in market pessimists’ arguments that the bad credit mortgage market’s problems will weigh down the U.S. economy and stock market.
First, Fremont General, one of the major lenders of bad credit home loans, has announced that it has sold its commercial real estate lending business to iStar Financial (SFI), a fairly sophisticated financial company.
In addition, the embattled home mortgage company has brought in banking industry veteran Gerald Ford to clean up Fremont.
Second, Fifth Third Bank recently bought the troubled Florida mortgage arm from R&G Financial. These two deals indicate that there are willing buyers of troubled assets.
Fremont General’s deal is a significant blow to the housing market doomsday predictors.
These are the experts who have insisted that in this bullish market, the subprime implosion and the potential for it to spread to the rest of the housing market and the broader economy is grave.
With this deal, it seems that there are more than enough buyers of assets to sweep up the mess. Like the thrift implosion that came in the 1990s, in which investors came in to buy assets and home loans for cheap, it seems this real estate problem will also be fixed by the private market.
The liquidity that is putting a floor under stocks is now also putting a floor underneath the housing market’s problems.
The Fifth Third deal shows that sophisticated buyers are not afraid to take on the toxic real estate market that is Florida. The Sunshine State has experienced a classic real estate bubble driven by over speculation and cheap money.
The fact that FITB still wants to be in the market and isn’t pulling in its horns indicates that most troubled financial institutions in Florida can probably find savior them rather than sinking into the swamp.
This is important because serious economic problems usually occur when area mortgage brokers and banks have to reign in lending, bringing capital investment and spending to a halt.
If the Florida banks can stay liquid, the rest of Florida’s economy, aside from construction, should hold up fine.
The two deals confirm what the bulls have been saying - the subprime and housing market problems will be contained and not hurt the economy. The liquidity tide, so to speak, continues to roll right over arguments for a major market decline.
SOURCE: Seeking Alpha