Commercial loan workouts could help many small regional and local banks that have non-performing, commercial mortgage loans. Commercial loan workouts can take existing commercial mortgage loans and restructure them to more favorable terms.
Just look at recent figures in an article by Zacks Equity Research
posted on Zacks.com website, entitled: "U.S. Bank Failures Stretch to 81". The article stated "In the first quarter of 2010, the number of banks on the FDIC's list of problem institutions grew to 775 from 702 in the fourth quarter of 2009. This is the highest since the savings and loan crisis in the early 1990s". The Zacks.com article also said that "increasing loan losses on commercial real estate are expected to cause hundreds more bank failures in the next few years. The FDIC anticipates bank failures to cost about $100 billion over the next three years."
Banks with large holdings of commercial mortgages stand a greater risk of collapsing and adding non-performing loans to their books. Due to federal regulation, banks want to limit if all possible, "toxic" or non-performing commercial mortgages from the portfolios. What tool can change defaulted loans back into potentially, performing loans?
Commercial loan workouts can modify or restructure an existing commercial mortgage loan by lowering the interest rate, reduce or eliminate late fees, reset balloon payments or extend terms. Commercial loan workouts can also defer payments, allow temporary, interest-only payments to help borrowers to catch up and increase cash flow.
As indicated in previous articles on this website, many industry experts predict a wave of commercial mortgage defaults in the next few years, due to declining property values, higher vacancies and tighter lender guidelines. Unable to refinance into newer loan terms, many commercial borrowers will face large balloon payments, which will eventually lead to loan defaults.
In conclusion, commercial loan workouts could possibly save banks from losses by turning non-performing loans back into highly prized, performing commercial mortgage loans.
For more information on commercial loan workouts, please visit: Loan Workout