Goldman CFO sees less risk in commercial mortgages

NEW YORK (Reuters) - Goldman Sachs Group Inc (GS.N) Chief Financial Officer David Viniar said on Wednesday he expects commercial mortgage securities will hold up better than residential loans because the underlying properties are of higher quality.

Following massive write-downs of leveraged corporate loans, residential mortgages and related securities by banks over the past year, there is growing concern that lenders will face losses from commercial mortgages and other securities. Viniar, though, said he does not expect a similar meltdown.

"The commercial real estate market is different from the subprime residential market. You have a situation where, for the most part, the assets underlying those (commercial mortgages) are pretty good quality," Viniar said at an investor conference.

New York City's General Motors building, for example, would very likely be worth more in five or 10 years than it is today, regardless of any near-term weakness in office towers, he said.

Real estate investor Macklowe Properties recently said it may have to sell or refinance the GM building to raise money to repay other obligations.

The Goldman executive also remains bearish with regard to "subprime" residential mortgages extended to people with poor credit. Goldman's negative view on the sector served it well last year, as the firm generated billions of gains by betting subprime securities would fall.

NOT CONVINCED

Despite more than $100 billion of write-downs by banks and brokerages last year, Viniar said he is not convinced that market prices have fallen to appropriate levels.

"In subprime, you have a lot of poor underlying assets," he said. "Are we past their (market-clearing) value? We're pretty close. I can't say whether we've reached that level, but we're getting closer. You can't go below zero."

Viniar added Goldman remains eager to snap up mortgage assets trading at distressed prices.

In December Goldman acquired Litton Loan Servicing, which sends out bills and collects payments for subprime mortgage accounts, from C-BASS. Goldman paid $428 million in cash plus the repayment of $916 million of outstanding Litton debt.

Goldman also has acquired servicer Avelo Mortgage, and a mortgage lender, Senderra Funding. In recent months it has also formed investment funds that will buy distressed mortgages and other debt.

"We'll be a buyer if people are sellers, at the right price, of course," Viniar said. "The difficult thing is you really have to do the work. Every mortgage security is different."

Wall Street executives were unanimously upbeat through much of the past year, assuring investors that the subprime crisis would not spread to other markets until the losses started piling up. Goldman, though, was one of the few banks who sidestepped the crisis by shorting subprime markets.

Looking ahead, Viniar said it is difficult to hedge against falling commercial mortgages, since real estate indexes don't match up exactly with the risks of individual properties.

(Editing by Brian Moss)