WHY COMMERCIAL MODIFICATIONS ARE DESPERATELY NEEDED NOW!

he commercial mortgage market is in crisis. It’s the next foreclosure wave to hit the US and this tsunami will be the biggest wave of all.

Commercial property loans originated between 2005 to 2008, most which carry risky terms are likely to see a significant increase in defaults in 2010 due to lack of credit, falling property values and reduced cash flow.

Commercial property owners have it tough these days. With no credit, no business and tenants not paying their rents, delinquencies and defaults are rising rapidly. The collateral damage can be seen in nearly every major street corner in America. Major retailers, restaurant chains and other establishments have simply closed shop and left town. Leaving empty buildings and memories of what use to be.

The Federal Reserve and Treasury officials are scrambling to prevent the commercial real estate sector from delivering a destroying blow to the U.S. economy just as it struggles to get up off the floor. Their efforts will be undermined by a surge in foreclosures of commercial property carrying mortgages that were packaged and sold by Wall Street as bonds. Similar mortgage-backed securities created out of home loans played a big role in undoing that sector and triggering the global economic recession.

To make matters worst, U.S. banks are holding more than $1 trillion of mortgages backed by commercial properties that are losing value. As property value declines and scarce credit continue to drive commercial property developers and investors into default, total lifetime losses on banks’ $1 trillion “core” commercial-mortgage holdings, those backed by income-producing properties. Those expected losses would be at least as large as those on loans originated and bundled into commercial-mortgage-backed securities (CMBS), from 2005 and 2008, a period of cheap and reckless credit.