Real Estate Capital Markets 1972-Present

Real Estate Capital Markets 1972-Present

J. Hohauser

Mr. Hohauser gave an overview of the real estate capital markets.  He explained that in the early years, there were (2) types of loans – home loans and income property loans. Loans were gotten from Savings and Loans institutions. There were no adjustable rates and normally loans were 80% or 95% LTV with mortgage insurance (M.I.).  Income loans were mainly secured by insurance companies.  Regulation Q fixed the rate at which Savings and Loans institutions could pay its borrowers.  Since rates were regulated, Savings & Loans mainly competed for customers by service, location and giveaways.

According to Mr. Hohauser, the “Great Inflation of the 70’s” was cause by the Vietnam War, Lyndon Baines Johnson’s social programs, and the energy crisis. During this time, investors started to leave the country because a 3% return was not keeping up with inflation.

The “Thrift Crisis” lasted from 1970-1980.  This crisis was a result of limited examinations of Savings and Loans institutions, excessive Savings and Loans branches, lax enforcement of government regulation and the Federal government’s failure to fund the Savings and Loans insurance fund.

From 1996-1995, the U.S. government went into recovery mode.  It funded the thrift insurance fund and the FDIC took over regulating lending institutions.  The government also formed the RTC (Resolution Trust Company) to manage bad loans. Total taxpayer clean-up for the crisis was $124 billion.

The next phase according to Mr. Hohauser was “Financial Innovation/Mortgage Revolution.”  The revolution was that different parties originated the loan package, guaranteed the loan and serviced the loan.  You also saw the emergence of non-bank lenders. Another change was the roll of GSE’s (Government Sponsored Enterprise).  Lenders began to sell loans to GSE’s like Fannie Mae. The GSE in turn guarantees the interest and principal, an in turn sells the loan to investors.

Will we see another change in the market since the crash in 2008?  Probably so.