Grace – it is said – refers to a Single State only – whereas Sin refers to a multitude. Good Lending – like a State of Grace – is hard to maintain – but easy (and dull) to analyze if maintained. But – at the moment – I am studying US regional banks who are – to extend the analogy – no longer in a State of Grace.
Bad Lending however – like Sin – comes in many forms. There were bad mortgage loans with nothing down, no proof of income, no proof of assets and brokers incented to fraud. And there were milder Sins (with much lower loss rates). With commercial lending there were also a multitude of Sins – from lending to real-estate subdivisions in the desert (in towns with no market for the end product) to a commercial loan to a auto-mechanic to own their property. The desert housing development loans will probably default and average severity on such loans is above sixty percent. The auto-mechanic is probably underwater on the loan – but may have a personal guarantee and will not default even if they went delinquent as the economy soured.
Most bloggers are righteous people – and they bang-on about the fall from Grace. Get over it – we are not Virgins any more. What I am trying to compile – and I want my readers to help – is a Morphology of the Sin of bad commercial real estate lending. So I am begging for comment: I would like feedback on the state of debauchery in various markets. Some things I am observing are surprising me. Desert state vacant housing lot loans are – unsurprisingly – still a bust. But much to my surprise some Midwest banks have reported that they can now sell (for non-trivial money) vacant housing land from their real-estate-owned inventory. In that lies some redemption.
So consider this a request for recent anecdotes – by region and by commercial real estate class. Like some good Minister I want to understand your Sin...