Very Large Losses Are Forecast for Commercial Real Estate and expected to strongly affect some Community Banks and will the Housing Market be affected further by the fallout?
Will this affect you if you are not an investor in commercial real estate or a banker? It could as the panel stated "a significant wave of commercial mortgage defaults would trigger economic damage that could touch the lives of nearly every American."
The Congressional Oversight Panel issued a report today, "Commercial Real Estate Losses and the Risk to Financial Stability" which expressed concerns about coming losses in Commercial Real Estate and also described how these losses could affect nearly everyone.
The concern is that community banks play a critical role in financing the small businesses that help create new jobs and this will have a negative effect slowing the economic recovery.
What affect will this have on the housing market and could it slow the housing market recovery while the commercial market works out it woes.
In the report the panel "is deeply concerned that a wave of commercial real estate loan losses over the next four years could jeopardize the stability of many banks, particularly community banks, and prolong an already painful recession."
The panel stated there are $1.4 trillion in commercial real estate (CRE) loans made in the last decade that will require refinancing in 2011 through 2014 and "nearly half (of the loans) are presently underwater," which means the borrower owes more money to the banks than the property is worth. The worry is that even borrowers who own profitable properties may be not be able to refinance their loans if needed as they face tightened underwriting standards, increased demands for additional investment by borrowers, and restricted credit.
The commercial real estate crisis is not expected to affect any of the largest banks enough for failure although the community banks face "the greatest risk of insolvency due to mounting commercial real estate loans losses" as reported today.
Michael S. Richardson
Director/Mortgage Fraud Services
Office (Direct) 888-877-7951