US programs seen too late to stem foreclosure wave
Thursday, March 26, 2009
Source: Reuters
Reuters reports: The new federal programs to aid the U.S. financial markets will likely not fend off the impending wave of foreclosures on U.S. commercial property loans, experts said.
U.S. Treasury Department officials unveiled this week more specifics of a program that will enable the federal government to help private buyers purchase toxic loans and asset-backed securities, including commercial mortgage-backed securities (CMBS).
The U.S. commercial real estate boom that started around 2004 and peaked in 2007 was fueled by cheap debt. Banks and other lenders were often willing to lend up to 90 percent or more of the purchase price. The loans often assumed optimistic rent growth and rising occupancies in the future.
Borrowers and lenders assumed that the loans, often interest-only, would be repaid by property sales or by new loans that would cover the principal due and more.
But in the second half of 2007, when the credit markets froze, the market began to collapse. Now borrowers are finding themselves squeezed as older loans come due and there is little lending to support sales or refinancing.
"The myth has been that commercial is far more solid than residential," said Robert White Jr, president of Real Capital Analytics. "We were all patting ourselves on the back, that we weren't overbuilding."
U.S. commercial property prices are falling at a similar rate to residential, down about 17 percent year over year, according to Real Capital Analytics.
Sales volume for commercial real estate was down 80 percent in February because of the inability to get a loan and the wide gap between the prices buyers and sellers want.
View the full article on Reuters: US programs seen too late to stem foreclosure wave
Posted by: Matthew Stone