Wall Street firms and investors do not stand to make enough money from a trust deed investment to justify their efforts. The size of individual investment and the subsequent work required to create each investment to be properly aligned for benefit are looked as being “non- scalable.” Due to the lack of huge amounts of capital within the trust deed investment market explain Wall Street’s absence from this scene. Wall Street is a major contender in what is known as the securitized loan industry, which does relate to trust deed investing in a general sense.
Why don’t huge Wall Street firms provide trust deed investments?
How does the securitized loan market relate to and affect the market?
Within the world of real estate loans, most loans are funded by a bank or other financial institution and maintained on the lender’s balance sheet as an asset. Other types of loans are funded by a lender with the understanding that the loan will be sold off relatively fast (within weeks) to another investor who will package that loan with other loans and sell it as a security in a capital market as an asset which includes the loan.
Commercial Mortgage Backed Securities or CMBS is another variation of real estate loans. A Wall Street firm would make a loan using its own funding and then sell off the loan as part of a security once a certain number of loans have been funded or created to create a diverse conglomerate of loans.
What will happen is Wall Street increases its issuance of Commercial Mortgage BackSecurities (CMBS)?
CMBS loans went into a swift downward spiral during the recent financial crisis after achieving record levels prior to the crash. While CMBS markets recover, the absorption of more loans that could otherwise go to private lenders is happening. Although, some opportunistic situations requiring fast funding usually for unstable properties that are not generating steady cash flow mean that the market for competent trust deed investors and private lenders will have a hand in the game.
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