Where are Paul Sarbanes and Michael Oxley when you really need them?  Remember all the hullabaloo about Sarbanes-Oxley, and how that piece of game changing legislation was to make the corporate world fully transparent, and was supposed to provide investors with the ability to make better informed decisions?  Remember the term "full disclosure?"

Anyone who's anyone in commercial real estate these days knows that some commercial building owners have been given some pretty impressive gifts by their lenders.  Those gifts, substantial to say the least, include delays of foreclosure, reduced interest rates, more time to make mortgage payments, and other efforts designed to keep certain properties in the hands of borrowers and off the books of lenders.  From the perspective of not dealing another blow to an already struggling economy, this may not be entirely bad.  And, given the very real challenges commercial landlords are experiencing, giving them financial relief, and time to bring failing buildings back to health is a good thing.

However, technically speaking, many commercial loan, where lenders are giving landlords more time to make debt payments, are in default under the terms of their original mortgages.  I agree that banks and landlords should seek practical solutions to avoid foreclosure whenever possible.  However, such short-term fixes very often are just that...short-term...and do very little to eliminate the inevitable.

The real challenge here is that some banks are not fully disclosing that such loans are in default.  This "technical" oversight is significant, to say the least.  By masking full disclosure to the world that certain borrowers are in technical default of their loans, these banks are able to show a lower delinquency rate, and therefore appear to be much stronger than perhaps they really may be. This, at a time when some banks have closed and others, even name brand institutions, struggle to survive. 

Should banks be permitted to understate the true risk profile of their commercial real estate loan portfolios...in the interest of supposedly building consumer confidence?  Is that really why they're doing this?  Is this nothing more than permitting banks to delay the next wave of bad economic news?  If and when the other shoe falls, how might that affect corporate tenants?  What's the answer? 

Sarbanes-Oxley was enacted to force companies to be transparent in their dealings and to protect the interests of investors, borrowers, consumers, and other stakeholders.  That includes banks.  Where are Paul Sarbanes and Michael Oxley when you really need them?

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