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WASHINGTON (CNNMoney.com) -- A congressional watchdog panel warned on Thursday that mounting commercial real estate losses could endanger the banking system and thwart economic recovery.
A total of $1.4 trillion in commercial real estate loans will require refinancing in the next four years, the Congressional Oversight Panel said in a report. More than half of those loans are underwater, written for properties whose value has dropped like a rock.
The expected losses when loans go bad could hit between $200 billion to $300 billion and threaten 3,000 small and mid-size banks with a disproportionate share of commercial real estate assets on their books, according to the panel.
The report is intended to "wave a red flag" to the White House and Congress that the commercial real estate loan market is going to get a lot worse before it gets better.
Elizabeth Warren, the oversight panel's chairwoman, said "When commercial properties fail, the result is a downward spiral of economic contraction, as these are the same small banks that create jobs and boost economic activity."
Possible solutions mentioned....
The Treasury department should "stress test" banks that are concentrated in commercial loans. Also, putting capital into these small banks is another solution that was mentioned. Bank regulators could also simply allow banks to extend underwater loans rather than requiring them to recognize losses, but the panel worries that such a move could delay a rebound in bank lending. But the panel also worries that massive writedowns throughout the banking system could stymie lending and create a "negative bubble." Keeping a close eye on these small banks is the main idea though.
What are the ripple effects on this commercial real estate crisis on the economy? What do you think the best solution to this potential problem?
This sounds preaty bad. In the movie they mentioned that once houseing CDO's went bad, it made all realestate CDOs look bad. I guess the comerical realestate market was just following the residential one down. There seems to be a lot of worry over small banks and them being able to loan out money. However I just don't know any good solution to this.
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The ripple effects are the same as the housing market crisis. It's the same situation but at a worse time becuase we are still not yet recovered from that crisis. Dealing with two economic crisis at the same time will be devastating to the economy.
ReplyDeleteIf the expected loss when loans go bad is between $200 billion to $300 billion; action much be taken early so that we can try new solutions if the first one doesn’t work. I am not sure about this but I think that if small banks begin to loan out money, they will be in danger of getting sucked in into this bad economy and housing issue. A
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