Showing posts with label commercial mortgage-backed securities. Show all posts
Showing posts with label commercial mortgage-backed securities. Show all posts

Sunday 31 January 2010

Other interesting interest-bearing investments: Mortgage Bonds and Term Annuities

Today a myriad of unit trusts invest in interest-bearing investments.  These include:
  • money market funds,
  • income funds, and,
  • bond funds.

Mortgage Bonds

One of the most attractive interest-bearing investments with a fixed capital value is participation mortgage bonds. 
  • Here you invest in units in large mortgage loans that are granted against the security of a first-class physical asset, for example, commercial, industrial or other property. 
  • Your capital is guaranteed and you earn interest at a competitive rate that can be variable or fixed. 
  • A great advantge is that a participation bond becomes quite liquid after the initial five-year period when you can still enjoy the interest income and withdraw on only three months' notice.
  • (These mortgage bonds caused the subprime credit crisis in 2007-2008 in US).

Term Annuity

A voluntary purchased term annuity is another important investment product from which you can earn a regular income.  It is simply the exchange of a cash lump sum for income, which is paid annually, half-yearly, quarterly or in monthly instalments over a specified period (minimum five years). 
  • This basically means that your original capital is refunded by way of regular instalments together with interest earned on the investment. 
  • You will therefore not get back any capital at the end of the period as in the case of fixed deposit. 
  • A voluntary term annuity can be purchased at any life office and is in essence an insurance contract. 
  • The interest or annuity rate is fixed for the term of the contract, but varies from institution to institution. 
  • This investment product also offers a tax benefit, as you pay tax only on the interest part of your annuity.

Wednesday 11 February 2009

US ECONOMIC STIMULUS PLAN - Commercial property included

Feb 11, 2009
US ECONOMIC STIMULUS PLAN
Commercial property included

NEW YORK - THE commercial real estate industry applauded the government's move to include commercial mortgages in a key lending program on Tuesday, but experts said the plan's lack of details is disconcerting.

Treasury Secretary Timothy Geithner said the government's Term Asset-Backed Securities Loan Facility will include securities backed by commercial property loans.

The programme, being developed by the Federal Reserve, allows investors to swap AAA-rated securities for US Treasurys, which could then be used as collateral for new financing. The goal is to create new lending in a now frozen market.

The news comes not a moment too soon for the troubled commercial real estate industry, which is facing a deluge of debt coming due this year at the same time that property prices, rents and occupancies are falling.

If commercial landlords can't refinance, loan defaults will spike and lenders could end up owning shopping malls and office buildings along with their piles of foreclosed homes. That would likely prolong the credit crisis.

'There was a sense of urgency to do this quickly,' said Brendan Reilly, the lobbyist for the Commercial Mortgage Securities Association, about the bailout. 'It's critical to kick-starting the market.' The market for commercial mortgage-backed securities, or CMBS, virtually shut down last year as the financial system unraveled.

CMBS are commercial mortgages that are pooled together, sliced into pieces and resold as bonds. The money that lenders receive from the bonds is used to fund more loans.

The CMBS market funded nearly half of all commercial mortgages in 2007 at the height of the industry's boom. Last year, that shrank to 5 per cent, Reilly said.

The result? Sales plunged and, along with it, property prices.

Construction and acquisition loans dried up. And refinancing for short-term debt stalled. Commercial foreclosures have become a real possibility for even the soundest properties and owners.

'No one is calling for a bailout for high-flying guys who overpaid at the top of market, but there are many healthy owners with performing assets who can't access the debt markets right now,' said Dan Fasulo, managing director of research firm Real Capital Analytics.

About US$171 billion (S$257.7 billion) of non-bank commercial mortgages are scheduled to mature this year, according to the Mortgage Bankers Association.

And while defaults on commercial property loans now are relatively low barely above 1 per cent, they could shoot up to between 5 per cent and 6 per cent if credit conditions don't improve, said Victor Calanog, research director at Reis Inc.

'It's a great first step' Calanog said about the plan, 'but there's much to be done in fleshing out the details.' The plan leaves out a key piece of the puzzle: How will the government price CMBS assets, or any securities backed by debt? So far, the free market can't value them because no one is buying them, said Hessam Nadji, managing director at Marcus & Millichap Real Estate Investment Services.

'It sounds good in concept, but I'm still having a hard time deciphering the real solution,' Nadji said. 'The devil is in the details.' -- AP


http://www.straitstimes.com/Breaking%2BNews/Money/Story/STIStory_336827.html