RCA in the commercial property press:

FDIC Moves to Stave Off Distress

Apartment Finance Today reports: Two recent moves by the federal government will further help lenders and owners ride through the storm by providing cover to keep amending and extending loans. But the impact, and consequences, of each move are a source of debate within the finance community.

In the fall, the IRS announced a new rule allowing CMBS loans to be modified without triggering massive tax implications. And in late October, the FDIC clarified a rule, basically allowing banks to extend and amend loans without triggering higher capital reserve requirements.

Both policies apply to performing loans that are hurt by either a weak local market or the lack of liquidity available on the market to refinance.

The FDIC's policy clarification, announced last month, had an immediate effect on some borrowers. A member of the National Apartment Association said that his bank called him hours after the FDIC announced the policy and agreed to do a workout and two refinancings that he’d been asking for.

"The bank wanted to do the deal, but were waiting for confirmation that they wouldn’t get hit," says David Cardwell, vice president of capital markets for the Washington, DC-based National Multi Housing Council. "The fact that it happened the same day tells me it’s a very positive thing for the industry.

The policy is also a signal that the government believes sunnier days are ahead and waiting for the capital markets to pick up is a better bet than forcing foreclosures now.

"It was definitely a sigh of relief for the lending community," says Dan Fasulo, managing director of New York-based Real Capital Analytics. "Just about every asset purchased over the last few years has broken loan-to-value (LTV) covenants, but it’s just a function of valuations falling."

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Posted by: Nina Turner

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