(WASHINGTON, DC) -- First it was the Big Banks. Now it's the Little Banks.
DSNews.com reports losses from defaults on commercial real estate loans maturing in the next few years, could go as high as $300 billion, threatening to topple nearly 3,000 community banks nationwide, according to the latest market analysis by the Congressional Oversight Panel.
The panel is charged with keeping tabs on the government's Troubled Asset Relief Program (TARP).
None of these banks is among the 19 largest bank holding companies, but are the smaller regional lenders who stepped up to extend credit within their local neighborhoods.
The COP says community banks, rather than large Wall Street institutions, face the greatest risk of insolvency due to mounting commercial real estate loan losses.
Forecasts project that banks will suffer their worst losses well after 2010, and well after Treasury's bailout authority expires under TARP, the panel said.
"The banks that are on the front lines of small-business lending are about to get hit by a tidal wave of commercial-loan failures," says Elizabeth Warren, a law professor at Harvard University who heads the COP.
According to federal guidelines, 2,988 banks nationwide are classified as having a concentration of commercial loans.
The panel's findings show that $1.4 trillion in loans made over the last decade for retail properties, office space, industrial facilities, hotels, and apartments will reach the end of their terms and require refinancing between 2011 and 2014.
According to the panel, the loans most likely to fail are those made at the height of the real estate bubble, when it seemed property values could go nowhere but up.
DSNews.com reports since that time, commercial property values have fallen more than 40 percent, and now, nearly half of the loans coming due are "underwater," the panel said, making refinancing particularly difficult to secure.
"Even borrowers who own profitable properties may be unable to refinance their loans as they face tightened underwriting standards, increased demands for additional investment by borrowers, and restricted credit," according to the panel.
Warren and her fellow panel members warn that "a significant wave of commercial mortgage defaults would trigger economic damage that could touch the lives of nearly every American."
They point out that when commercial properties fail, it creates a downward spiral of economic contraction, meaning job losses; deteriorating store fronts, office buildings and apartments; and the failure of the banks serving those communities, the DSNews.com reports.
Because community banks play a critical role in financing the small businesses that could help the American economy create new jobs, their widespread failure could disrupt local communities, undermine the economic recovery, and extend an already painful recession, according to the panel's findings.
The new data comes on the heels of a field hearing the committee held last month in Georgia. Deterioration of the commercial real estate market there has contributed to the failures of 30 Georgia banks since August of 2008 - more than in any other state in the nation.
Comments on this Story
HudginsCommercial.com | 02/20/10 11:37 AM | Reply
Well Freddy and Fannie have the real estate market in a world of hurt, t thing is the worst is yet to come.. Because of the Banks greediness.. Look at this video link.. It show the corrupt attitude of the government, especially Barney Franks.
http://www.thinkbigworksmall.com/mypage/archive/1/32274
Leave a comment