Bernanke Says Commercial Property May Pose Risk for Economy
Bloomberg reports: Federal Reserve Chairman Ben Bernanke said a potential wave of defaults in commercial real estate may present a "difficult" challenge for the economy, without committing to additional steps to aid the market.
Bernanke, testifying before the Senate Banking Committee today, urged lenders to modify "problem" mortgages to avert defaults. Christopher Dodd, the Connecticut Democrat who chairs the panel, told Bernanke that some have suggested the commercial market "may even dwarf the residential mortgage problems" in the U.S.
The Term Asset-Backed Securities Loan Facility (TALF), a Federal emergency program that lends to investors to purchase securities backed by consumer and business loans, began accepting commercial mortgage-backed securities as collateral last month.
Fed policy makers will extend the TALF, currently scheduled to expire Dec. 31, should they judge financial markets are still "some distance from normal operation," Bernanke said today.
"We will certainly be monitoring the situation, and if markets continue to need support, we will be extending the final date of that program," Bernanke said.
It "may be appropriate" for the government and Congress to consider "fiscal" steps to support the industry, Bernanke said today. Ideas for fresh support for the market could include government guarantees for commercial mortgages, Bernanke also said today, while noting no proposal on the subject has emerged.
U.S. commercial property prices fell 7.6 percent in May from a month earlier, bringing the total decline to 35 percent since the market's peak, Moody's Investors Service said in a report this week. Commercial properties in the U.S. valued at more than $108 billion are now in default, foreclosure or bankruptcy, almost double than at the start of the year, Real Capital Analytics Inc. said earlier this month.
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Posted by: Matthew Stone