The Advisability of Real Estate Lending

Where was Mike Milken when I needed

him? I’m a veritable milquetoast compared to him: my view is simply that

buying a home isn’t always a good idea, especially not when it costs

less than half as much to rent as it does to buy. Milken, on the other hand,



It will be "quite a while before we have a robust housing market again,"

Milken said in an interview today. "The idea that any loan against real

estate is a good loan has never been a rational thought."

The "basic assumption" that home prices will continually increase

is wrong, said Milken.

I don’t necessarily agree with Milken on the subject of real-estate loans:

in general, I think that a real-estate loan with good underwriting – that

is, a real-estate loan where the borrower can repay the mortgage out of his

income – is likely to perform reasonably well. Occasionally, it won’t:

ask any Japanese bank which lent money against commercial real estate in the

mid-80s. And, of course, there’s no shortage of real-estate loans which are

not well underwritten, both in the subprime sector and, more recently,

in commercial real estate. But those are artifacts of bubbles, and I think that

in the grand scheme of things, lending money against property is a good business

to be in. After all, your mortgage is pretty much the last thing you’re going

to default on.

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