I've actually dropped this into my To Do list and am replying late, but I really appreciate your input!
Farfromgeneva wrote: ↑Tue Oct 08, 2019 8:04 pm
All I can say is that...... There’s so much capital chasing anything right now. Liquidity is undervalued. There’s plenty of capital for any type of borrower. Want a 30yr mortgage, pay floating rate because while 30yr credit risk has a long tail there’s plenty of ALM mgrs like pensions funds and insurers that need long credit risk assets to offset future liabilities.
I agree. In my current world, we can get PE guys to return calls and take meetings just by saying the four magic words: "Reliable Positive Cash Flow". There is more liquidity than there are assets, and a business with positive cash flow get's a long, hard look. Premiums are paid. You can sell a successful restaurant for maybe twice or thrice EBITDA. You (apparently) have to pay 19 X to buy a going concern like Popeyes. Scale matters.
Farfromgeneva wrote: ↑Tue Oct 08, 2019 8:04 pm
There’s...plenty of demand and no, it wouldn’t be prime plus 700bps for a mortgage. Not even close. Banks [on the whole] make roughly a 1% ROA and 10-12% ROE.
Ah, here's where we differ. I'm talking about a 30 year fixed, not a 10/1 or less product. The stuff that cautious homebuyers insist on. Go ahead, find someone who will issue a product with a 30 year fixed term and accept the 660 FICO, slender reserves, wage supported cash flow borrower with Agency scale ratios, and you'll rule the roost.......and, yeah, maybe you'd have to structure the product at a rate closer to Prime Plus 500bps or so, because the average primary residence mortgage lasts (last time I looked) maybe 5 point something years, but without a sturdy secondary market, this would be a product that is shunned by the risk averse. You know this.
Farfromgeneva wrote: ↑Tue Oct 08, 2019 8:04 pm
I’m less concerned about SBA because that’s venture debt, different mandate.
I've never heard SBA described that way. I've now adopted your phrase as my own. A flash of literary brilliance on your part Geneva!
Farfromgeneva wrote: ↑Tue Oct 08, 2019 8:04 pm
But any shock would be due to the extreme change but it wouldn’t last, the markets would adjust.......
But adjust to what? Again, Fan and I (and probably you) are concerned that if the Agencies get dissolved or get banned as abruptly as the Kurds did the shock would be absorbed after a while but home values would collapse (in slow motion) and besides that huge billow of home equity, we'd lose consumer confidence, a bunch of value in the mortgage secondary market, and eventually a material segment of our GDP. Socialism will have been slain in the Housing market, but at what cost? Private capital will fill the void, but on what terms?