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Second wave of foreclosures?

By Jay MacDonald ·
Monday, August 1, 2011
Posted: 9 am ET

While we continue to closely monitor the toll that residential foreclosures are taking on our home values, the long-feared second wave of economic trouble from all those deserted strip malls, office parks and industrial complexes across the land has so far failed to materialize.

For more than a year, analysts have been predicting that a tsunami of commercial foreclosures was imminent. A February report by the Congressional Oversight Panel warned that projected losses in the $200 billion to $300 billion range could threaten the economic recovery and swallow many small to midsize banks.

But so far at least, that wave has failed to break. Some say it never will.

Why? Well, a commercial foreclosure is a far different beast than its residential counterpart. For starters, unlike residential foreclosures, commercial foreclosures are usually contested. For example, in the seizing of a strip mall, lawyers for the developers, tenants and banks can keep a commercial filing in slo mo. Sometimes they even develop into civil suits that can drag on for ages.

In some cases, commercial lenders are placing these imperiled properties on life support through a practice known as "extend and pretend." Darron Kattan of Franklin Street Financial Partners in Tampa, Fla., told the St. Petersburg Times that lenders extend the loan, pretend that their values haven't collapsed and hope that the economy recovers enough to bail them out before the loans expire.

"They're not in a hurry to push the gas pedal on these foreclosures," he says.

Larry Richey, senior managing director of Cushman & Wakefield commercial real estate advisors in Tampa, told the Times that the long-predicted second wave won't ever break. That's because banks absorb higher losses when they foreclose on a strip mall than when they own a ranch home. These days, banks are in no mood to carry the added weight, not to mention the higher taxes and maintenance costs that accompany commercial foreclosures.

There's no question that commercial property values have taken a hit lately. The feds estimate that values have dropped 40 percent since early 2007. And no one is disputing that plenty of commercial loans are currently underwater. Patrick Kelly, managing director of Grubb & Ellis real estate advisors in Tampa, estimates that $1.5 trillion in commercial loans will come due over the next three years, loans that cannot be extended forever.

Fortunately, it has been in many lender's self-interest to modify commercial loans and make other accommodations to avoid foreclosure, in sharp contrast to their seeming lack of interest in residential loan mods. This slow-track approach, together with emerging signs of life in the commercial sector, has downgraded the economic threat from tsunami scale to something more manageable.

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August 11, 2011 at 8:10 pm

In my opinion, the programs out there do not help the majority of the homeowners in AMERICA. The recent program thathas expired for the unemployed up to $50,000.00 to assist in mortgage payments for up to two years. I have my mortgage from a local bank and when I applied for a modification my offer from them was that they would lower my payments by $250.00 per month. Put me in a 30 year fixed at 5.375% and when the 30 years is up I would have a baloon payment of a $150,000.00. I refused. They did not perticipate in any of Obama's Make Home Affordable Programs....though all the paperwork I received came from their.

The interest rates on my credit cards skyrocketed and I called each credit card company for help....they refused though I never missed a payment and had A1 credit....I had to make a choice them or my mortgage....obviously I chose to keep my home...I filed bancrupsy with my head held high knowing I did my best and it was the crooked credit card companies that forced my hand. After taking Billions of dollars from America, they turned around and socked it to the American People. The sad thing, it was allowed.

If things are going to work then the Government needs to put in place without loopholes....rules, real rules for all to follow.....all the money we give other countries should be stopped and put on hold while America revamps itself financially.

On the mortgage front ALL Financial Institutions need to drop all mortage interest rates by 2 -3% across the board and only to those mortgages that have not been helped in the past.

In closing, 5 in 1 arm expired, my rate dropped to 3.375% till this October saving approx. $300 a month....will see what happens....

America is in trouble financially, we need to act quick....don't let her down.

Thank you

August 01, 2011 at 10:53 pm

This article just proves the point that the banks are not inclined to modify residential loans. There's absolutely no policing for the lender's. Regardless of the Treasury Department's Directives on how lender's should adhere to HAMP..they aren't! The treasury directive dictates that lender's should NOT foreclosure while a homeowner is under review for a loan modification (generally a 90 day process)...however they DO foreclose on people in such situations daily. It's the Wild West out there. Commercial loans are not advantegous for them to foreclose on...while securitized residential properties can actually MAKE them money. We need impartial oversight badly but that's not happening, especially with the trust companies (which are supposed to be impartial) are owned by the banks.

I. Duncan
August 01, 2011 at 9:50 pm

This is very interesting news. Would you please comment on the fact that foreclosures are insured, but modifications are not and why.