It’s fascinating how long it takes more mainstream publications to pick up on trends being analyzed on a daily basis by many financial blogs.
Maybe it’s the severe level of skepticism that mainstream media may have for nimble, cyber journalists, or maybe it’s more of the quickness that these folks get to the heart of problems, rather than skirting around them.
Whatever the case may be, the hard money bloggers, freelance finance analysts, and other lone sentinels knew very well that banks are holding onto deals, rewriting and restructuring them, hoping that their clients will turn business around to repay the bank.
As they continue to rewrite, they seize up capital that could be spent on servicing new loans to qualified borrowers.
True, these banks could just let their clients default on their loans and write off the loss, but this means the banks would take a massive hit in their capital base if they aren’t prepared ahead of time for such a loss. If they send their clients away to other banks capable of handing their near-delinquent borrowers, the borrowers may take their loyalty, and their deposits, with them.
The Wall Street Journal covers banks “Extend and Pretend” tactic as both a strategic move by banks to wait out the recession, but also as a foreshadowing of Japan’s own capital stalemate decades ago. They go into a bit of detail with an Umpqua deal that has been extended since 2007 or so.
Maybe all of this attention on this lose-lose scenario that conventional banks seem to be putting themselves in will bring to light the advantages of a hard money solution.
True, hard money rates are above market, but there is a lot of money available through hard money providers to pay off loan maturities without any big change in customer loyalty or deposits. Hard money lenders, like Fairway, are not interested in stealing your client. We really don’t have the function to do that so it’s seriously not possible.
We would like to see some more capital free itself up to encourage loan demand. Recovery means more business, more spending, and even more demand. That’s not a bad thing.
