There is a bill (HR 5249) proposed by House of Representatives Ed Perlmutter and Mike Coffman to provide small banks with assets of less than $10 billion to amortize their commercial real estate losses over a 7 year period. It is known as the ‘Capital Access for Main Street Act of 2010'. This is a step to assist small banks with the impending losses they are due to receive as commercial real estate continues to depreciate. Unlike traditional residential financing with fixed 30 year loans, it is more common to see commercial loans with maturity dates within of 5 to 10 years of their origination. It has been stated that there is an estimated $1.5 trillion in commercial loans maturing in the next 3 to 5 years. With an average loss in value of 30% to 40% from the time the loan was originated, it is easy to see that highly leveraged properties equate to huge losses for the owners and lenders.
What impact could this bill have on commercial lending? If passed, the intent of this bill is to free up significant amounts of capital for commercial real estate lending. But according to Erika Morply in Globest.com, there are a number of critics of the bill's positive impact for small banks ability to lend. Cards stacked against the bill's effectiveness include current regulatory policy, the likelihood that small businesses may jump to the front of the line as dollars are made available and commercial real estate is still viewed as too risky for the small banks.
While this bill may not be the ultimate answer to saving many small banks and proving much needed capital to the commercial real estate market, I applaud the efforts of Perlmutter and Coffman in working to find a solution. It is a far cry better than the impact of the FDIC closing down a community bank. The collateral damage to the business owners and developers with loans of the failed bank is catastrophic.