Developments in the Commercial Real Estate Sector
The residential mortgage crisis is currently the primary focus of the media and the bulk of America. However, there is a looming crisis that has the potential to make the residential melt down seem like a picnic. The commercial sector is poised to collapse in a similar fashion as the residential sector. Commercial lenders must act now before the collapse comes to perform commercial loan modifications in order to prevent a major financial disaster.
Recently, 20 major commercial lending banks failed and were taken over by the regulators, but there has been no uproar. The FDIC and the IRS have both issued statements to commercial lenders attempting to prevent a financial collapse similar to that seen in the residential sector.
The FDIC released a Policy Statement on Prudent Commercial Real Estate Loan Workouts in October. This policy statement outlined the possible issues that are expected to arise in the coming months pertaining to commercial real estate and how lenders can act to minimize these risk issues.
The main way in which the Policy Statement suggested that commercial lenders deal with these future issues is to be proactive now in finding a workout solution with the borrower to modify the loan. The FDIC is basically telling these commercial lenders to modify commercial loans or there will be a catastrophe similar to that in residential.
The IRS issued a similar statement in October that encouraged commercial lenders to modify loans by specifically laying out how the IRS would look at the workouts from a taxation point of view. The IRS states that they will give certain tax benefits to commercial lender who perform workouts as well as treat the assets differently if they are in a workout.
What we see here are two large institutions foreseeing a problem on the horizon and attempting to take proactive steps to address the problem. The issue is that the FDIC and the IRS are only making recommendations on how to stave off collapse. There is nothing forcing the commercial lenders to negotiate workouts. Lenders had proven that their greed knows no bounds and they will just look for a bailout from the government if they start to fail.
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Source: National Loan Auditors, Inc.
http://www.NLAudit.com
