Smart Borrower Blog

Commercial Loans Seen As the Next Big Problem

May 25th, 2009 @ 1:59 PM by Alden Smith

The National Association of Realtors is quoted as saying” commercial real estate is the hardest hit industry outside of the auto industry.   A recovery in commercial real estate always lags a general economic recovery but with the right policy prescriptions we can recover more quickly.”

It appears there is little liquidity in the commercial loan market at present.   Right now it faces its worst challenge since the Great Depression.   According to Reuters, hundreds of billions of dollars in commercial loans will mature this year with over $1 trillion maturing in the next three years.   If there is no liquidity, commercial borrowers will have a very   hard time refinancing debt.   This is setting the market up for delinquencies and foreclosures.   This would in turn put more pressure on the economy, which is enough trouble now as it is.

Chief Economist Lawrence Yun of NAR reports that up till recently, loans have defaulted at about 1 percent.   Lately however, that figure has raised to 5 percent because of the lack of refinancing activity.

Recently the Federal Reserve Board announced that, beginning in June, mortgage backed securities will once again be eligible as collateral under the Term Asset-Backed Securities Loan Facility (TALF). NAR is asking Congress to enhance federal tax policies to strengthen the commercial real estate market.   They would like to see Congress maintained the capital gains tax at 15%.

Right now, banks are being held back by regulators that don’t want to see a lot of new lending.   Although some banks have passed a stress test, many are still on very shaky ground.

Certainly this is a wait-and-see situation.   Like so many other things that affect the economy today, much can be traced back to the mortgage market in general.   I believe the current administration is doing everything possible to make things work, and work right.

Today is Memorial Day.   Many people see it as the first weekend of summer, with barbecues, parades and family gathering.   I have spent the day in deep reflection on those that have given their lives to make this country what it is today.   Being a veteran of unpopular war, I know what it’s like to be a young soldier down in the trenches steered have to death.   We have these military heroes to remind us on this day that we are a nation of three individuals.   Our military will keep it that way.