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Mortgage Bankers Association Succumbs to a Short Sale

Adam Rust's picture

Posted February 8, 2010

The Mortgage Banker's Association of America, unable to make good on its mortgage, has entered into a short sale on its commercial loan outstanding on its Washington, DC headquarters.  The MBAA is selling to CoStar for $41.3 million, a sum far short of the $75 million in debt that they took out in 2007.

The MBAA announced their intentions back in October to sell 1331 L. St. because they couldn't make payments on their $79 million headquarters. The MBA had a whopper of a mortgage - a variable-rate loan mortgaged at 94.9 percent

loan-to-value. It was an investor

Unable to Meet Mortgage Obligation, MBA Gets a Short Sale on their L St. Headquarters

loan.  The MBAA bought a lot more "house" than they needed.  They needed about 60,000 square feet, but they opted for something finer - a 170,000 square foot structure.  According to their leadership, their (speculative) thought had been that they would rent the rest of the space out to tenants.

Their investment scheme didn't pan out.  Tenants were only paying about $4400 per month on that space, and only about 15 percent of the extra space was even occupied.

There is no word on whether or not they were trying to make a balloon payment, or if they rolled their closing costs into the loan. Its also not clear if they opted for a mortgage with a large reset, or if they had a teaser rate on that ARM.

When I hear the words "variable-rate", "vintage 2007", "unable to make payments," and "mortgage broker," one name comes to mind: Wells Fargo.  Wells was the champion of the 2-28 and the 3-27, and they did most of that work through their mortgage broker brethren. Is the MBAA a victim of the very hand that had been feeding it (and vigourously?)

Well, perhaps that is the case.The MBAA financed their loan through a group of banks led by PNC, with additional financing from Wells Fargo, Chevy Chase Bank, and Virginia Commerce Bank. The MBAA represents about 2,400 lenders, loan brokers, commercial banks, thrifts, and life insurance companies. Yes - Wells Fargo! I suppose it was a 2-28: the loan would have reset over the summer of 2009, right before the MBAA announced that they were putting the building up for sale.  Now the MBAA is broke, they've laid off half of their staff, and one more loan is in the gutter.

The MBAA is well-known for offering a paternalistic critique of borrowers in foreclosure. Asked about what borrowers should do when facing a mortgage whose outstanding debt exceeds their home's current value, ex-President Jonathan Kempner offered that they should continue to make payments, if only to send the right message of personal responsibility to their children.

Solutions

The Mortgage Banker's Association's ex-President, Jonathan Kempner, admits that they made an "imprudent" decision.  That's nice, but we want to make sure that this doesn't happen again. Homeownership is nice, but it comes with a responsibility. Taking a short sale might help their situation, but what about the future Mortgage Bankers Associations? What kind of message are they sending their (children) youngsters? Don't they have a responsibility to make good on their commitments?

Maybe they should have waited to buy. They could have rented.  It is just one more example of a market that was willing to make loans to just anybody. I hope that they'll use this as a learning opportunity. They should enroll in one of those financial literacy courses.