USC Lusk Center Experts Discuss How Shifts in Real Estate Lending Will Affect Commercial and Residential Markets

• Real Estate Economists Weigh in on Sub-Prime Lending, Falling Home Prices and Overbuilding

LOS ANGELES--(BUSINESS WIRE)--With mortgage delinquencies and foreclosures increasing, lenders tightening standards, the pool of homebuyers shrinking, and speculators dropping out of once-hot markets, what is ahead for residential real estate in 2007? What will be the ripple effects on the commercial sector? How are builders, lenders and the capital markets adjusting to the changes? Is there still a future for sub-prime loans and exotic mortgages?

For answers to these and other questions about the changing real estate landscape, journalists can talk with the real estate finance experts and economists affiliated with the University of Southern California Lusk Center for Real Estate (www.usc.edu/lusk). Among the topics that can be addressed:

Investors are pulling back: Collateralized debt obligations (CDOs), backed by pools of sub-prime home mortgage loans, have fallen out of favor on Wall Street. As more borrowers default on these high-risk mortgages, lenders are requiring home buyers to put more money down, demonstrate greater income levels, and pay higher interest rates. All this means less money available for buyers with less-than-perfect credit, resulting in fewer homes being sold.

Declining returns make investors shy away: How will the recent bear market affect investment in REITs? Now that speculators have backed away from housing markets, prices could continue to fall.

REO and short sales reenter the lending lexicon: As “teaser” rates on adjustable rate mortgages (ARMs) start to shift higher, more borrowers will fall behind on their home mortgage payments, and more defaults could result. Real estate owned (REO) departments could get busy again as foreclosures become common in areas with major job loses (Michigan). Short sales – selling the home for less than the amount owed – will help the bank avoid being a landlord and the borrower’s debt may be forgiven.

Are the vultures on the way back?: Buyers for distressed properties could be coming back, looking to snap up mortgages or real estate at a discount, confirming that there is always an opportunity in every kind of market.

A move to suburban infill: As investors cool on mortgage-backed securities in general, exotic mortgages featuring interest-only, no money down and deferred payment instruments could be a thing of the past in the commercial sector. Developers who use these mortgages to finance higher-priced projects in the urban core might move farther out to lower-cost suburban areas.

Less is more: A lower inventory of homes for sale helps to stabilize prices on new and resale homes. The latest surveys showing fewer new-home sales bode well for local markets. Builders have become more sophisticated at anticipating demand and responding to market shifts.

Surf’s up: People will continue to flock to cities in Florida, Texas and California so demand will keep home prices steady even in the face of massive building. The Census Bureau predicts 65 million more residents in the United States by 2030, with almost half in these three states.

The following real estate finance experts are available to comment:

• Stan Ross, chairman of the board, USC Lusk Center for Real Estate
• Raphael Bostic, Ph.D., director, USC Masters in Real Estate Development program and interim associate director of USC Lusk Center
• Delores Conway, Ph.D., director, Casden Real Estate Economics Forecast
• Gary Painter, Ph.D., director of research, USC Lusk Center for Real Estate
• Chris Redfearn, Ph.D., associate professor, USC Lusk Center for Real Estate