The Congressional Oversight Panel’s new report predicts more trouble ahead for the already suffering banking industry. The Feb. 11 analysis says a wave of commercial real estate loan defaults over the next four years could jeopardize the stability of midsize and small banks.
As much as $1.4 trillion in commercial real estate loans made over the last decade will require refinancing in 2011 through 2014. Nearly half of those loans are currently “under water,” the panel says, meaning the borrower owes more on the loan than the underlying property is worth.
The panel, created in 2008, concludes government intervention may be needed. Although the federal government cannot keep every bank afloat, the panel says, “neither should it turn a blind eye to the dangers of unnecessary bank failures and their impact on communities.”
Ken Simonson, the Associated General Contractors’ chief economist, says the tight credit market has already made obtaining loans extremely difficult, and he doesn’t expect that to change soon.