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Posted about 14 years ago

Commercial Loan Modification Gets Green Light, Maybe

Last week the US Government bank regulators have officially gave way to the the practice ” pretend and extend” by issuing new guidelines for banks.    The FDIC new guidelines allow banks to pretend that assets are worth something when in reality they are not worth the paper it was printed on.    Now the banks can say its worth 90 cents on the dollar when their market value is really much closer to 50 cents.  Why?  It makes the banking system healthier than it is.   “Look Mom, no write-offs”.Commercial

The commercial real estate crisis is gaining momentum and we guess the new rules could ensure that the commercial crisis will take longer.  Instead of foreclosing and the bank taking the write-offs, the new rules could encourage banks to modify existing commercial real estate loans.  Banks are not admitting there is a problem.

Most business owners will not be able to refinance the loans because of the loan-to-value problems, so when the loans come due, the business owner might get screwed unless they get some help from then banks or from established companies like Real Estate Commercial Group.

Bank failures for the year reach 106 last week.  With over 1.4 trillion in debt of CRE loans about to mature.  Banks should provide commercial loan modifications because current guidance allows them to modify the loan even if the loan amount exceeds the market value.

So,  the loans that get a commercial loan modification and the borrower is  current will not be classified as a high risk by regulators because the collateral backing them has declined to a amount less than the current loan balance. What about the borrower who is behind?

While the new guidelines may delay the problem and give banks time to acknowledge the problems and plan for it, the US Recovery, in fact, greatly overestimated.

 


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