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Deutsche Bank Data Shows Bank Losses Mounting as Lenders Stop Trying for Workouts

September 16, 2010

As San Bernardino commercial real estate loan modification lawyers, we were disappointed but not surprised to see that commercial real estate is driving increased losses at banks. That information comes from a report by Deutsche Bank AG in New York, Bloomberg News reported Sept. 10. In fact, the report said monthly losses on commercial loans more than doubled between April and August, to $501 million in the latter month. The article also reported on a separate Moody's report that also reported bad news in the CRE market -- the delinquency rate on commercial mortgages packaged into bonds has risen. A Deutsche Bank analyst said the jump in losses on CRE loans was the start of a trend caused by the rising number of loans that are in trouble and banks' increasing unwillingness to restructure smaller loans.

Fitch Ratings estimated that as of June 30, about $92 billion worth of loans are currently in "special servicing," meaning the borrowers are having trouble making payments and may be delinquent. That number is 25 percent higher than the value of loans in special servicing at the end of last year, and Fitch expects the number to hit $110 billion by the end of this year. The Deutsche Bank analyst said special servicers are giving up on trying to reach a loan workout on smaller loans, perhaps because they want to save their limited resources for reworking bigger and higher profile projects. As a result, the analyst said, lenders may start selling small loans in bulk portfolios more often. The article mentioned one financial company selling a portfolio of 20 non-performing loans with an average size of $5 million each. An observer told Bloomberg that more lenders are now willing to take a risk on such portfolios, driving up prices.

This information strikes our Los Angeles commercial real estate loan modification attorneys as odd. Lenders will not modify smaller CRE loans because they don't believe the return is worth the resources, but this means they are losing money. Wouldn't they lose less money if they put more effort into trying to save those nonperforming loans? There may be another factor that makes this a good business decision, but it was not reported. Meanwhile, the article says lenders will finance the purchase of portfolios full of small non-performing loans. These may be different lenders from the ones that won't finance attempts to change those loans so that they will perform. The financial industry is a complex system and it's doubtful that lenders are planning these strategies together. But it seems simpler for lenders to keep trying for workouts on loans that can reasonably be saved.

Howard Law PC helps CRE investors negotiate with their lenders for loan modifications to commercial real estate mortgages. As the article briefly notes, the bad economy has put some CRE investors in a tight spot, with revenues falling as demand falls for office space, hotel rooms and other commercial space. This lack of revenue makes it hard to make loan payments, especially when the loan was taken out at the height of the CRE "bubble" a few years ago. As a result, many commercial investors are unable to refinance, giving them a choice between defaulting and negotiating for an extension or other change in the loan's terms. Our Huntington Beach commercial real estate loan modification lawyers believe everyone is better off when the loan is changed in a way that minimizes losses for the lender and makes the loan payments easier for the borrower to meet. We negotiate hard with lenders to make this case and keep our clients in business and in a position to make money.

If your commercial loan is at risk and you're not getting anywhere with your lender, Howard Law may be able to help. To learn more or set up a free consultation, please contact us online or call 1-800-872-5925 today.