No Bailout in Commercial Loans Means Another Crash
Analysts are predicting that the government won’t be helping the banks who made commercial loans that are going into default. It’s not just because the government is out of money either. The commercial lenders are being told to resolve their problems on their own by negotiating with the borrowers. Interesting why this is. It seems that most commercial loans are structured such that interest only payments are required for the life of the loan and then the loan “balloons out.” Making the monthly payments are only half the problem for business owners. Right now because credit is so tight many companies are finding it impossible to refinance when their loans come due. Additionally, property values have shrunk as well, making the loans upside down and ineligible for refinancing. Sound familiar? Therein lies the problem. By forcing the commercial lenders to do the negotiations with the customers, it may be possible to mitigate the commercial real estate tsunami that seems to be impending. If only the government had forced the banks to negotiate with their borrowers on the residential side, we might have had fewer displaced families. In the mean time, you can be sure that this next wave of commercial real estate foreclosures will capsize this economy again–this, coming at a time when we haven’t really coughed up all the water from the previous tsunami. Hold on for another wild ride.
Lingling Wei of the WSJ has more to say on the topic here…..
Please weigh in on this topic as we are in a position right now to guess which way commercial real estate is going to go….take the economy way down or just down a little or not at all. Who has an opinion?