Post by Richard Conrad on Nov 13, 2009 11:56:08 GMT -7
Commercial real estate owners got some encouraging news during the past few weeks. Several economic reports showed promising signs, and the FDIC made clear how it is looking at commercial real estate loans sitting on the books of banks.
For the first time in two years, tangibly good news came out of the Bureau of Economic Analysis on GDP growth. The government agency reported 3.5 percent annualized growth in gross domestic product, which is the highest since the third quarter of 2007. Many economists are declaring the recession over.
In addition, the Purchasing Managers Index of business activity showed that the manufacturing sector grew in October, with increases in new orders, production and, for the first time in 14 months, employment.
And now, the Federal Deposit Insurance Corp. has issued a 33-page policy statement aimed at easing concerns over souring commercial real estate loans sitting on banks' books.
Critics contend that banks, which hold more than half the $3.4 trillion of outstanding commercial real estate loans, have been extending loans just to keep from having to write them down. The policy statement provides detailed guidance for bank examiners and a rough road map for troubled borrowers.
The statement doesn't mean banks and borrowers are off the hook for bad loans, but it helps define the proper practices for dealing with loan modifications and extensions.
Perhaps the best news is for borrowers and banks struggling with a matured loan in which the borrower is strong and the collateral has sustained a loss in value or tenants, but there's good and sufficient cash flow to cover debt service.
In that specific case, the FDIC allows the bank to continue to carry the debt without a negative classification, even though the loan-to-value could be more than 100 percent.
Beyond the specifics above, the policy statement gives guidance to banks as they work through restructuring troubled loans. Two central themes for banks are:
For the first time in two years, tangibly good news came out of the Bureau of Economic Analysis on GDP growth. The government agency reported 3.5 percent annualized growth in gross domestic product, which is the highest since the third quarter of 2007. Many economists are declaring the recession over.
In addition, the Purchasing Managers Index of business activity showed that the manufacturing sector grew in October, with increases in new orders, production and, for the first time in 14 months, employment.
And now, the Federal Deposit Insurance Corp. has issued a 33-page policy statement aimed at easing concerns over souring commercial real estate loans sitting on banks' books.
Critics contend that banks, which hold more than half the $3.4 trillion of outstanding commercial real estate loans, have been extending loans just to keep from having to write them down. The policy statement provides detailed guidance for bank examiners and a rough road map for troubled borrowers.
The statement doesn't mean banks and borrowers are off the hook for bad loans, but it helps define the proper practices for dealing with loan modifications and extensions.
Perhaps the best news is for borrowers and banks struggling with a matured loan in which the borrower is strong and the collateral has sustained a loss in value or tenants, but there's good and sufficient cash flow to cover debt service.
In that specific case, the FDIC allows the bank to continue to carry the debt without a negative classification, even though the loan-to-value could be more than 100 percent.
Beyond the specifics above, the policy statement gives guidance to banks as they work through restructuring troubled loans. Two central themes for banks are: