The insurer covered billions of dollars in risky derivatives on commercial mortgage-backed securities that also went bad.
The commercial mortgage business is also a good business, but without a constant influx of capital, its growth is limited.
This reticence may illustrate why commercial mortgage bankers are reducing retail properties as a percentage of newly issued securitized mortgages.
Then there are questions of who would buy Lehman and what the size of its commercial mortgage-backed securities write-down will be next week.
He says the program could be expanded over time to include commercial mortgage-backed securities, certain residential mortgage-backed securities and other assets.
The favoured loan is a commercial mortgage structured to be paid back over 15 years but granted in five to seven-year increments.
Without residential and commercial mortgage loans marked to market, bank financials are works of fiction, just like Japanese banks' financials were in the early '90s.
Buyers of retail property have been taking advantage of debt financing available from the sale of commercial mortgage-backed securities, a market that has been gathering steam.
With once-active players such as Lehman Brothers Holdings Inc. no longer around, some private-equity funds and commercial mortgage real-estate investment trusts have sought to fill the void.
Commercial mortgage backed securities (CMBS) have also been infected, although there is no obvious connection between overstretched residential borrowers and the markets for office and retail space.
But with the commercial mortgage-backed securities markets virtually shut down, the buyers could turn to their own balance sheets or to life companies and other institutional investors for support.
The Federal Reserve is widely expected to help by making commercial mortgage-backed securities eligible for its programme (known as the TALF) to support the securitisation market with subsidised loans.
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Another scenario: The economy worsens, property owners miss debt payments, mortgage REITs are hit by defaults in their whole-loan portfolios, falling prices for junky commercial mortgage bonds and margin calls.
As a result, commercial mortgage bonds, including these shaky malls, have lagged behind a recent rally and retail loans in new deals are getting greater scrutiny from investors and rating firms.
The facility may be expanded over time and eligible asset classes may be expanded later to include other assets, such as commercial mortgage-backed securities, non-agency residential mortgage-backed securities or other asset classes.
For instance, a commercial mortgage on a rental property typically requires copies of rent rolls, leases, tax returns, an appraisal and more, taking several weeks to assemble, says Bill Geis, head of retail lending at Raymond James Bank.
The settlement terminates credit default swaps Morgan Stanley purchased from MBIA to protect holdings of commercial mortgage-backed securities and resolves the pending litigation between the two and will see an undisclosed cash payment from the bond insurer to the bank.
FORBES: Morgan Stanley Settles MBIA Suits, Will Take $1.8B Hit
Even though default rates on commercial mortgage-backed securities are less than 1.0%--compared with higher than 20.0% for high-risk home loans--that level is expected to rise as the global economic slowdown makes business conditions increasingly difficult for hotels, retailers and other companies carrying office building mortgages.
Bank of China's interest in securitization coincides with an unprecedented start to the year for the commercial-mortgage-bond market.
Meanwhile, the values of commercial-mortgage bonds issued during the boom years have risen.
Commercial and mortgage brokers behaved recklessly in 2005--06, but the Fed's creation of excess dollars made the binge far worse.
Veer off this mainstream market into the land of private-label and commercial-mortgage-backed bonds and you can get some really sexy yields.
After all, office, commercial and mortgage REITs are largely tied to the business cycle, but college enrollments tend to remain steady over time.
Many commercial properties still are suffering from high vacancy and low demand, and the resulting defaults have caused losses for some commercial-mortgage security investors.
Faced with another hefty quarterly loss, it is shopping both its worst assets (a toxic commercial-mortgage portfolio) and its best (Neuberger Berman, a fund manager).
Faced with another big quarterly loss, it is hawking around both its worst assets (a toxic commercial-mortgage portfolio) and its best (Neuberger Berman, a fund manager).
This month, some investors have been hit with losses as their commercial-mortgage securities, or CMBS, that had been steadily rising in value for months went into reverse.
During the economic downturn, many commercial-mortgage REITs were hit hard.
The strong showing of commercial-mortgage REITs during the quarter reflected their high dividend yield of an average of 7%, according to the National Association of Real Estate Investment Trusts.
Last spring, the firm's commercial-mortgage team knew it had an exposure problem so it began moving aggressively to sell the debt even if that meant taking losses in some cases.
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