Why the Financial Regulators Asked Banks to Consider Commercial Mortgage Modification

With the threat of a commercial real estate bubble similar to or even worse than that of the residential housing market, it is easy to understand why the financial regulators have advised banks to consider the possibility of commercial mortgage modification for distressed borrowers. The regulators, including the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, know that the stability of the banks and lenders is threatened by the predicted wave of troubled commercial real estate borrowers. These borrowers are facing difficult challenges such as the depreciation of their properties, a slump in operating cash flows, and lengthy absorption periods for sales and rental.
The bank regulators also know that many of these distressed borrowers remain worthy of credit and have the capability and the willingness to repay what they owe to the banks. How To Deal With A Builder Thus, if the creditors and the borrowers can work together to find a commercial mortgage modification deal that would be acceptable to both of them, then both would benefit.
Meanwhile, the government bodies require that the risk management procedures of the bank should still be followed to effectively remove the possibility of giving help to those who no longer need it. Various Real Estate Pricing Methods controls should remain in place, including management information systems, documentation standards, management infrastructure, effective collection systems, regulatory reporting, and credit review.
The regulators believe that there are various forms for the commercial mortgage modification agreement. These include the extension of the loan terms, provision of additional credit, renewal of certain loan provisions, or restructuring of the payment terms. And if the loan restructuring is supposed to cause degradation in the classification of the loan, the bank examiners will not consider this as a negative mark against the bank as long as prudence was exercised by the bank in formulating the details of the loan modification.
The financial regulators know that the failure of both parties to find a common ground will result into a foreclosure that would negatively affect both of them. The borrower will lose the property and its corresponding income while the lender will have to engage in the expensive process of foreclosure only to have a property in its possession that is very difficult to sell.
Meanwhile, the borrower may need to obtain the services of a loss mitigation professional to ensure that the various details of the commercial mortgage modification agreement are taken care of. First of all, a forensic loan audit is conducted to determine if the loan agreement contains clues indicating that the rights of the borrower had been violated. Because these violations have severe penalties, knowledge about these offers a tremendous amount of leverage for the borrower when meeting with the lender at the negotiating table.
After the preliminary or preparatory stage, the consultant calls on the lender for pre-qualification. This means that he will find out if the lender is willing to talk, which is very likely unless there are indications that the creditworthiness of the borrower had been severely damaged. Then, they proceed to the negotiations until an agreement is reached.

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