Commercial real estate loans have the potential to go sour and wreck the U.S. economy unless regulators prepare now, according to a report today from a watchdog Congress created for the government’s financial bailout program.The report should be a “red flag” that prompts regulators to increase preparations for staving off another banking crisis, said Elizabeth Warren, a Harvard law professor and chairman of the Congressional Oversight Panel of the Troubled Asset Relief Program. The panel was created in October 2008 to monitor the Treasury’s efforts to rescue the banking system from the worst financial crisis in decades.Between 2010 and 2014, about $1.4 trillion in commercial real estate loans will reach the end of their terms and nearly half are “underwater,” meaning the borrower owes more than the property is worth, the report said. If economic conditions and tighter lending standards mean that borrowers can’t refinance, “hundreds” of banks could fail and the broader economy could suffer, said the report, which the panel approved unanimously.“There is a serious problem coming and it will hit an already weakened financial system,” Warren said on a conference call yesterday with reporters.
By Rebecca Christie, Feb. 11, 2010 Bloomberg
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