Plan nears on commercial loan modifications

NEW YORK – Oct. 16, 2009 – U.S. bank regulators reportedly are close to issuing guidelines that would prod lenders to rework troubled commercial real estate loans to help banks avoid larger losses.

Regulators are steeling for more failures, especially among small banks with major exposure to commercial property loans.

More than 50 percent of the $3.4 trillion in outstanding commercial real estate debt is now held by banks, with Deutsche Bank AG forecasting that commercial property losses could cost them in the range of $300 billion.

According to Federal Reserve Governor Daniel Tarullo, construction and development loans are causing the most distress because they likely are not generating any income or revenue for the borrower, thus making it easier to fall behind.

Source: Wall Street Journal, Damian Paletta (10/15/09)

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