Commercial Modification - Recent Developments

There are more than 2 trillion dollars in commercial loans coming due in the next few years. Almost 7 % are delinquent at the present time. Commercial Property values are down 43.7% according to the Wall Street Journal. Vacancies are still increasing across the CRE spectrum. This may represent the perfect storm for major trouble in the CRE space moving forward. Some say it could be the cause of a double dip recession.

Most Commercial Lenders are doing workouts but the process is slow and particularly difficult for those not familiar. Recently (September 2009) the IRS opened the door for CMBS loan mods with Proc 2009-45 which removes the tax liability for investors in such loans and adds "foreseeable" to the language regarding what loan status qualifies. Previously a loan had to be in Default or default had to be Immanent. The FDIC issued a 33 page Policy Statement on Commercial Loan Modifications in October 2009 and the Treasury Department extended TALF until 10/2010. All of this represents signs that the government realizes the danger ahead if maturing and delinquent loans are not resolved soon.

There is legislation pending and a bill that passed the senate banking committee attempting to re-write the rules for commercial finance creating more transparency and more skin in the game for conduit lenders and investors.  Assuming this bill became law (long shot) it doesn't go into effect for upwards of two years after passage.