The foreclosure crisis is wreaking havoc across America as millions of homeowners fall victim to the economic tsunami that is engulfing our nation. As market conditions progressively become worse, there is a new danger to the U.S. economy that may turn this once and for all into a full fledged real estate Armageddon. That danger on the horizon is the commercial loan sector which is now just starting to implode as small businesses and tenants go belly up across America.
The Congressional Oversight Panel issued their February report detailing the risks that these loses will pose on the American economy. The study, “Commercial Real Estate Losses and the Risk to Financial Stability,” warns that the potential loses from commercial loan defaults over the next four years may jeopardize hundreds of the nation’s community banks.
Between 2010-2014 approximately $1.4 trillion commercial loans will reach the end of their mortgage contracts as their terms expire. The report states that nearly 50% of these loans are now underwater. With increased vacancy rates at 18% and office space rents falling just as quick, we have a recipe for the beginning of a crisis that will dwarf the residential real estate crisis quickly.
Many of these loans are not held by the big residential mortgage banks, but mostly by local community banks who cater to small businesses. Hundreds of these banks are now at risk of insolvency as thousands of commercial loans default across the nation.
The Panel warns that the impending risks of this coming crisis could pose painful problems for communities, small businesses and American families who are already struggling to make ends meet.