Mortgage Bankers Bungle Their Own Building's Financing

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You know we're in trouble when even real-estate experts teeter on the brink of mortgage default.

The Mortgage Bankers Association, the trade group for mortgage lenders, recently sold its headquarters in Washington, D.C., for $41.3 million, nearly half of what it purchased the building at 1331 L Street, NW for in 2007 ($79 million). Unfortunately, the sales price--paid by CoStar Group Inc., a commercial real estate information company--is also significantly lower than the $75 million in financing the MBA secured to buy the building.

In short, in a scenario all too familiar to many beleaguered homeowners, the MBA found itself "underwater," owing substantially more than the current value of its property. However, unlike most real estate owners, the trade group was reportedly able to cut a deal with its lenders, according to insiders. The organization is expected to pay off at least part of the $38 million difference between its loans and the sales price.
The MBA, which has about 2,400 members, bought the building in early 2007, as a long-term investment. Of course, that was at the absolute height of the real estate market. The glass-encased building was not yet completed at the time. The MBA hoped to defray the costs of the building by taking on tenants, but renters currently occupy only 10 percent of the available 169,000 square feet. The trade group fills 40 percent of the building.

Going against the mortgage industry's own recommendation for property owners to continue to pay back their loans even when their real estate values plummet, the MBA announced it was selling its building in October 2009. The stated reason? Too much "economically imprudent" variable-rate debt. In other words, even though they had the cash, they didn't want to fork it over in a declining market. Sensible? Well, yes. Hypocritical? Um, yes, again.

It's not like this is the first time the MBA has tried to make its own rules. The organization broke its lease with its former landlord, Tishman Speyer Properties, to move into its new digs. It is still involved in a legal dispute with Tishman Speyer over a $1 million payment penalty due after moving out early.

With its bubble-era purchase sold, the MBA plans to rent again in Washington. If the bankers' experience-tempered decision is any guide, perhaps we all should be doing the same.
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