As handy phrases go, extend-and-pretend is hard to beat. It's a shorthand that is easy to understand and summarizes, whether fairly or not, the approach that lenders have taken to coping with the huge volume of distressed assets produced by the recession and falling real estate values. Whether the phrase is fair or not is subject to debate, says Mark Grinis, partner and global real estate fund leader at Ernst & Young, and a member of the DAI editorial advisory board. When I asked Grinis if extend-and-pretend has helped or hurt the recovery, he pointed out that the approach is not an orthodox, formal policy of lenders but a phrase coined to both describe, and to some extent deride, the practice of extending and modifying loans.

"It's really a policy of extend-and-wait- until-the-dust-settles," Grinis says. "This industry is vulnerable to very dramatic cyclical swings, and anyone who has been in the business for the past couple of cycles recognizes that selling at the absolute bottom of the market, when there is no liquidity, oft en maximizes write-off s and minimizes recovery."

How you view the practice of extending distressed loans depends in large part on where you sit. Investors who were hoping to grab loads of assets for pennies on the dollar have been disappointed by the relatively small percentage of troubled assets that have come to market. Critics have said that extending loans is just delaying the inevitable.