Commercial real estate has become a forced march accomplished on tiptoe. Borrowers facing loan maturities and an inability to refinance at higher rates talk to lenders. Often the result is an extend-and-pretend agreement.
Loans get modified or extended so the lenders don't have to write down the asset that would mean a loss and possibly a sign that other loans they hold might also be worth far less than the paperwork says. Lenders don't lose the property and also don't have to suddenly come up with large amounts of capital to refinance. Banks with between $100 billion and $700 billion in assets had the highest median for loan modifications, according to Moody's.
Extend-and-pretend has a dark side, says the Federal Reserve Bank of New York. A new analysis from them suggests that attempts to plaster over problems and wait for a favorable rate change don't help. Instead, it leads to increased financial pressure on banks.
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