Oversight Panel Report Forecasts More Commercial Distress
Mortgage Bankers Association reports: A Congressional Oversight Panel points to additional stress in commercial property markets. However, several analysts said the report "stops short" of providing a full assessment of current conditions.
Their report "Commercial Real Estate Losses and the Risk to Financial Stability" said it is "deeply concerned that commercial loan losses could jeopardize the stability of many banks, particularly the nation's mid-size and smaller banks, and that as the damage spreads beyond individual banks that it will contribute to prolonged weakness throughout the economy."
Dr. Sam Chandan, global chief economist and executive vice president at Real Capital Analytics, New York, said the report provides "an effective summary" of critical issues the industry faces in the next few years, including lagging property fundamentals and a potential sharp rise in default rates and bank stress, but "regrettably, the report stops short of offering a rigorous, analytical assessment of the likelihood that each link in the causal chain will reach a crisis point that triggers the threatened cascade."
In January, RCA reported $174 billion of commercial real estate mortgages in distress--80 percent or $136 billion "troubled assets"--properties that are either appointed to a special servicer, administrator or receiver; delinquent; in default; have liens filed on them or in the process of foreclosure. Another $14 billion in restructured and modified loans or lender real estate-owned properties and $17 billion resolved.
Chandan said the COP report falls short in "fully addressing the causal path that links commercial mortgage performance to the broader economy, principally through the channel of small business lending by regional and community banks."
"Some well-informed policy makers and real estate market participants doubt the potential for a dramatic spillover from commercial real estate into the wider economy," Chandan said. "The panel’s report does not resolve this issue conclusively."
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Posted by: Nina Turner