The fervor for distressed assets among would-be investors grew with intensity until the US government got involved and discouraged lenders from using the label, “everything must go.” This was the brave new world of extend-and-pretend. However, buyers and lenders alike should remember that not all distress is market-driven; some sales would have been bad ideas in any market. At the height of extend and pretend, the idea was almost trendy.

“In late 2008, when lenders began to work with borrowers to modify loans, the rate of recitivism was very high,” explains New York City-based Real Capital Analytics chief economist Dr. Sam Chandan. “The underestimation of financial expectations resulted in borrowers finding their way back to lenders for additional workouts,” he says. “Loan modifications dominated the management of distress in 2009 and 2010. Part of the uncertainty was the valuation of the asset should it come to market, and modifications were a loss-mitigating strategy.”

The idea was for lenders to work with borrowers and stave off a large loss in a plummeting market.