Private Equity Loves Loan Debt, Delinquency Keeps Rising [Housing Tracker]

Quotes Of The Day 

“Those who bought that debt for deep deep discounts, like 30 to 50 cents on the dollar back then made an absolute killing. Everyone's been waiting for that magnitude of a real estate crisis to return for the last 15 years now.” – Jeff Giller, managing principal and CIO of Liquid Realty Partners, which specializes in real estate’s secondary market. Giller was referring to big private equity players who successful bought bank debt during the savings-and-loan crisis of the late 1980s and today’s private equity players that are buying up debt now. (Pensions & Investments, Aug. 4^th)

“Subprime was the tip of the iceberg. Prime will be far bigger in its impact.” - Thomas H. Atteberry, president of First Pacific Advisors, a investment firm in Los Angeles that trades mortgage securities.” (NY Times, Aug. 4^th) 

Mortgage Trends

Housing Lenders Fear Bigger Wave of Loan Defaults. “The percentage of mortgages in arrears in the Alt-A category of loans one rung above subprime, quadrupled to 12% in April from a year earlier. Delinquencies among prime loans, which account for most of the $12 trillion market, doubled to 2.7% in that time… Mark Fleming, the chief economist at First American CoreLogic: Delinquencies on mortgages tend to peak 3-5 years after loans are made. Subprime loans from 2005 appear closer to the end of defaults than those made in 2007, for which default rates continue to rise steeply… CreditSights: Data on securities backed by subprime mortgages show that 8.41% of loans from 2005 were delinquent by 90 days or more or in foreclosure in June, up from 8.35% in May… By contrast, 16.6% of 2007 loans were troubled in June, up from 15.8%.” (NY Times, Aug. 4^th) 

Firms Battle Over Realty Debt. “Since the current debt crisis began, a number of managers have raised funds… to buy debt from banks. Last week, Sankaty Advisors LLC, the credit affiliate of Bain Capital LLC,  closed its fourth fund, the $3.5 billion Sankaty Credit Opportunities IV. Sankaty invests in leveraged loans, high-yield bonds, distressed/stressed debt, mezzanine debt, structured products and equities. Investors in the new fund include the $34B Pennsylvania State Employees Retirement System and $63.3B Pennsylvania Public School Employees’ Retirement System and the $16.9B San Francisco City and County Employees’ Retirement System. Other funds aiming to buy debt in distress include Starwood Debt Fund II, Aurora Resurgence Fund, Apollo Investment Management Fund VII, Apollo Credit Opportunities Fund and Siguler Guff's Distressed Opportunities Fund III.” (Pensions & Investments, Aug. 4^th) 

Mezzanine Financing Grabs Debt Spotlight. “Credit is harder to come by, the equity markets are walking a tightrope over bear territory and economists are debating whether there's a recession. But for those offering mezzanine financing, let the good times roll. Mezzanine and other types of debt were not exactly winning offerings a year or two ago, but the fortunes of debt originators appear to be improving. Private equity and real estate investment managers are either raising debt funds to make mezzanine loans or using a portion of existing funds to make loans.” (Pensions & Investments, Aug. 4^th)

Fed's Cuts Seem Toothless As Rates Resist. “A fixed, 30-year mortgage went for 6.6% last week, according to HSH Associates, compared with 6.4% the day the Fed started cutting rates. Mortgage lenders are demanding tougher terms. U.S. auto makers are cutting back or eliminating auto leases. Corporate borrowing costs are higher, too. The average yield of the high-rated bonds that make up the Dow Jones Corporate Bond Index has risen to 6.1% from 5.9%. Rates for riskier corporate borrowers have risen even further.” (WSJ, Aug. 4^th) 

Seeking Alpha's Housing Tracker is a collection of housing-related excerpts from various sources, grouped by topic. Feel free to post any interesting links on the subject in the comments section below.

Get Seeking Alpha's housing market coverage by email -- it's free and takes only seconds to sign up.