This is significant news out of Washington, but not unexpected, at least by this blogger. I have long maintained that the regulators, Congress and other government bodies will do what is necessary to mitigate a commercial real estate collapse. Information of upside-down loan values and the huge number of performing/non-performing loans* is well known to the industry and regulators. The banks are in no condition right now to take massive hits to their balance sheets so close on the heels of the credit freeze and residential meltdown that we just experienced.
In their guidance, the FDIC is opening the door for banks to rework, negotiate through and prudently modify loans that are essentially deemed salvageable, even if they are considered high risk, according to current underwriting standards.
Separately, it should be noted that the IRS also recently provided guidance regarding CMBS loans to allow for an improved tax environment for lenders renewing ballooning notes that have excessive loan to value ratios.
For more information, here is the press release from the FDIC and an article from the Miami Herald.
*Performing/non-performing loans are those loans that do not meet current credit underwriting standards, but the borrowers continue to pay scheduled payments. This is a term that we will hear a lot in coming months. As bleak a picture has been painted about the CRE market, most of the issues with commercial real estate debt revolve around performing/non-performing loans.
