Kanjorski And Calvert Call On Financial Regulators To Address Commercial Real Estate Market Instability

Press Release

Today, Congressman Paul E. Kanjorski (D-PA), Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, and Congressman Ken Calvert (R-CA) sent a letter asking financial regulators to work together to minimize the impact of the growing instability in the commercial real estate (CRE) market. The letter was sent to the leaders of the Office of Thrift Supervision, the Office of the Comptroller of the Currency, the National Credit Union Association, and the Federal Deposit Insurance Corporation.

The letter from Congressmen Kanjorski and Calvert highlights a recent report by the Congressional Oversight Panel, entitled "Commercial Real Estate Losses and the Risk to Financial Stability," released on February 11, 2010. The report indicates that about $1.4 trillion in commercial real estate loans will reach the end of their terms between now and 2014 and that nearly half of these mortgages are currently underwater as property values have declined and continue to do so.

"As Congress works to stabilize the economy and move towards recovery, the worsening commercial real estate market raises serious concerns that could potentially impair these efforts," said Chairman Kanjorski. "A report from the Congressional Oversight Panel reinforces these concerns and shows why our regulators must act proactively to address these issues before they get worse. We must work to protect our small businesses operating throughout the country as well as the 9 million jobs that depend on the commercial real estate industry. Additionally, we must also shield people in rental properties, many of whom are already feeling the negative consequences of this deteriorating market."

"The Congressional Oversight Panel report confirms what many of us continue to fear about the deteriorating conditions in the commercial real estate market," said Congressman Calvert. "Our financial regulators must work closely together to address these challenges and prevent widespread economic damage to small businesses and families across the country. The commercial real estate market does not need a bailout, but it is begging for a coordinated response by its financial regulators to restore stability."

The letter to financial regulators comes on the heels of a letter Congressmen Kanjorski and Calvert, joined by 77 of their House colleagues, recently sent to Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke regarding the impending troubles in the $6.7 trillion commercial real estate sector.

The text of Congressmen Kanjorski and Calvert's letter to Federal Deposit Insurance Corporation Chairman Sheila C. Bair, Comptroller of the Currency John C. Dugan, Office of Thrift Supervision Acting Director John E. Bowman, and National Credit Union Association Chairman of the Board Deborah Matz from February 17 follows:

Dear Chairman Bair, Comptroller Dugan, Acting Director Bowman, and Chairman Matz:

As you are aware, the commercial real estate market continues to face significant strains as a result of declining property values, refinancing difficulties, and economic uncertainty. Some have predicted that these problems have the potential to cause hundreds of billions of dollars in losses as loans come due in the next few years.

We now write to bring your attention to a recent report by the Congressional Oversight Panel, entitled "Commercial Real Estate Losses and the Risk to Financial Stability," released on February 11, 2010. The report indicates that about $1.4 trillion in commercial real estate loans will reach the end of their terms between now and 2014 and that nearly half of these mortgages are currently underwater as property values have declined and continue to do so. The report estimates that losses at banks alone could range as high as $200 billion to $300 billion.

Moreover, the Congressional Oversight Panel found that the impact of massive commercial mortgage defaults could be far reaching:

"A significant wave of commercial mortgage defaults would trigger economic damage that could touch the lives of nearly every American. Empty office complexes, hotels, and retail stores could lead directly to lost jobs. Foreclosures on apartment complexes could push families out of their residences, even if they had never missed a rent payment. Banks that suffer, or are afraid of suffering, commercial mortgage losses could grow even more reluctant to lend, which could in turn further reduce access to credit for more businesses and families and accelerate a negative economic cycle."

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