It’s not as prominent as some other bailouts — but it is gaining steam.
To wit, here’s a bit from the Wednesday Congressional testimony of Sheila Bair, chairwoman of the Federal Deposit Insurance Corporation, which is charged with insuring US bank deposits and guaranteeing the safety of its member banks:
The most prominent area of risk for rising credit losses at FDIC-insured institutions during the next several quarters is in CRE [commercial real estate] lending. While financing vehicles such as commercial mortgage-backed securities (CMBS) have emerged as significant CRE funding sources in recent years, FDIC-insured institutions still hold the largest share of commercial mortgage debt outstanding, and their exposure to CRE loans stands at an historic high. As of June, CRE loans backed by nonfarm, nonresidential properties totaled almost $1.1 trillion, or 14.2 percent of total loans and leases
…
In addition, the federal banking agencies will soon issue guidance on CRE loan workouts. The agencies recognize that lenders and borrowers face challenging credit conditions due to the economic downturn, and are frequently dealing with diminished cash flows and depreciating collateral values. Prudent loan workouts are often in the best interest of financial institutions and borrowers, particularly during difficult economic circumstances and constrained credit availability. This guidance reflects that reality, and supports prudent and pragmatic credit and business decision-making within the framework of financial accuracy, transparency, and timely loss recognition.
A loan workout in the traditional sense is like a voluntary credit arrangement — rescheduling the loan over a longer payback period to produce a smaller installment amount and the like. It wouldn’t be much different, probably, to what the FDIC has already done with troubled mortgages.
What’s interesting here, however, is how more and more of the US financial regulatory system — the FDIC, the Fed, and even the IRS — is now geared towards solving the commercial real estate problem. And that’s not even to mention the current benign environment for CMBS resecuritisations like re-Remics.
(H/T The Daily Capitalist).
Related links:
US banks warn on commercial property - FT
US real estate markets still weak, data show - FT Alphaville
Commercial real estate watch - FT Alphaville
