Good news for banks and commercial mortgage lenders was delivered recently by U.S. government banking regulators. They are recommending lenders work more closely with commercial borrowers to modify their commercial real estate (CRE) mortgages. They have become more aware of the negative burden that a high degree of defaults may cause on bank balance sheets. The Federal Financial Institutions Examination Council, which is comprised of the Federal Reserve, Federal Deposit Insurance Corp. and several other entities, said that responsible modifications to commercial real estate loans are often “in the best interest” of both borrowers and lenders.
More significantly, regulators announced that they will not penalize banks for performing loans where the currently appraised value of the mortgaged property is underwater. “Financial institutions that implement prudent CRE loan workout arrangements after performing a comprehensive review of a borrower’s financial condition will not be subject to criticism for engaging in these efforts,” according to the statement that was issued on Friday, Oct 30,2009. These guidelines will help to ease the confusion felt by lending institutions that are under tighter scrutiny to reign in the rampant irresponsible lending of the last few years that have created the current flood of foreclosure properties, both here in Myrtle Beach and throughout America.
The guidelines arrive just as commercial realty losses and foreclosures persist in causing worries for regulators and banking firms. Commercial real estate has shown increasing weakness in recent quarters, since it traditionally lags behind the disruptions in the residential home market. The continued increase in commercial real estate foreclosures and loan defaults are sending shockwaves through the financial sector as well. The default rate and late payments on real estate loans sold as commercial mortgage-backed securities (CMBS) soared to five times the previous rate in the third quarter. Approximately $26.64 billion of outstanding CMBS loans were 60 days or more past due in the last quarter, according to Reis Inc, a commercial real estate analysis firm. The delinquency and default rate rose to 4.52 percent from 0.8 percent just one year ago and 3 percent in the second quarter of 2009.
The firm said commercial property defaults and commercial foreclosures could exceed 6 percent near the end of the year. The Reis report said, “Downward pressure on net operating income and declining property values continue to make refinancing activity for existing loans a challenge.” The third quarter of 2009 became the fifth straight one in which no CMBS deals came to market in the U.S., according to the Ries report. Hotel loans constituted the poorest performers, with $6.83 billion of past-due loans, for a delinquency and default rate of 13.3 % of outstanding balances, said Reis. In comparison, the rates were 4.8 percent for apartments and 2.95 percent for offices in the last quarter. A delinquent loan is a minimum of 30 days and up to 89 days past due, with the loan going into default after 90 days. The Mortgage Bankers Association said the CMBS market represented nearly a quarter of all outstanding commercial loans as of the end of 2008.
The recent real estate market conditions here in Myrtle Beach, South Carolina have been challenging, to say the least, in both the residential and commercial housing sectors. Here at Coastal Reo Solutions, we have been working extremely hard to help our clients through these times. Our recent solution to a commercial real estate foreclosure for Horry Count State Bank was both a triumph and an illustration of the current difficulty many banks and lenders have in the commercial real estate market. We can assist both a borrower and a lending institution with a workable solution to assess, manage and market their foreclosure or pre-foreclosure property. Please contact us so we can start working on a resolution for your particular situation.
If you are a buyer, investor, or speculator looking to purchase foreclosed real estate be sure to use the proprietary search application located on our website. CRS also has access to Bulk REO packages and Bank Notes that may be purchased.
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Summer is upon us here in beautiful Myrtle Beach, South Carolina and at Coastal REO things are heating up as well. The foreclosure and bank owned segments of the market are still growing, unfortunately, but we are poised to handle your REO properties with our unique set of asset management services. Even though foreclosures have hit the resort and second-home real estate segments especially heavy, there is good news on the consumer front.
