Problems in the commercial real estate (CRE) sector have put Congress on the offensive. A bipartisan faction made up of 79 members from the U.S. House of Representatives sent a letter to federal regulators[IMAGE]this week urging the administration to take a stronger stance in addressing defaults and foreclosures on commercial properties.
The deterioration in the ""commercial real estate industry has the potential to infect our economy and slow a recovery,"" said ""Rep. Paul E. Kanjorski"":http://kanjorski.house.gov (D-Pennsylvania), chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises.
Kanjorski added, ""In order to safeguard the businesses operating on Main Street and protect the millions of jobs depending on commercial real estate, the Treasury and the Federal Reserve now must take needed and urgent action to stave off a potentially devastating wave of commercial real estate foreclosures and bank losses.""
""The letter"":http://kanjorski.house.gov/index.php?option=com_content&task=view&id=1711&Itemid=1, sent to Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke, revealed lawmakers' uneasiness with guidance issued be federal banking regulators late last year, which advises lenders to extend or restructure loans backed by income-producing or development properties whenever possible in order to minimize losses.
According to House members, there are early indications that the policies touted by regulators may not be doing[COLUMN_BREAK]
much to stabilize the CRE market. ""While some properties are in desperate need of modification due to the economic downturn, we are not convinced these loans are being serviced properly or in an efficient manner,"" lawmakers wrote.
Causing even more concern, they said, is evidence that regulators are encouraging lenders to write down the value of performing loans, even when payments are current and, in some cases, call in the loan. ""This further exacerbates the crisis by creating defaults in properties that were able to meet their debt servicing,"" the letter said.
Specifically, the lawmakers are asking regulators to establish a clear method for measuring the effectiveness of the recently issued CRE loan modification guidance, and institute metrics that clearly differentiate performing versus nonperforming loans.
The letter from House members also noted that the commercial property market, in particular, continues to hit roadblocks when it comes to accessing credit. According to lawmakers, the scarcity of credit in the $6.7 trillion CRE sector poses a dangerous threat to the nation's financial system just as signs of recovery are beginning to peek through. They are asking regulators to ""make clear public statements"" encouraging lenders to make credit available for performing assets.
""A liquidity crisis in the commercial real estate market is hurting small business owners across the entire nation,"" commented ""National Association of Realtors"":http://www.realtor.org President Vicki Cox Golder, owner of the commercial real estate company Cox & Associates in Tucson, Arizona. ""I join with all commercial property owners who applaud the efforts of [lawmakers] to resolve this problem and put small business owners back in business.""
House members concluded in their letter, ""We strongly believe that regulators must take continued steps to mitigate ongoing turmoil in the CRE sector before it becomes a full-fledged crisis, forestalls our economic recovery, and possibly requires additional taxpayer-funded capital injections.""