End of Extended and Pretend?

[Non Sequitur]

Are we nearing the end of extend and pretend? Per this article, office building loan delinquency rates have exceeded the previous high watermark of the Great Recession. How much longer can banks pretend and how much longer will the feds let them?

"Roughly 11% of office buildings tied to CMBS loans were delinquent, beating the previous high watermark of 10.7% set during the Great Recession in December 2012, according to Trepp, which began tracking the CMBS sector in 2000."

"Office loan delinquency has nearly doubled over the past year, growing from 5.8% in December 2023."

"The Federal Reserve in November noted that delinquency rates for commercial real estate loans increased to the highest level since 2014, with late loans for office properties jumping 11% in the second quarter of 2024 for large banks."

Rate Of Office Owners Behind On CMBS Mortgages Reaches All-Time High

More than 1 in 10 U.S. office properties backed by CMBS loans are considered delinquent.

www.bisnow.com

 

[TerryRohrer]

It kinda makes you wonder what bank regulators are for (other than enabling the appearance of sound banking while looking the other way).

"The paper warns that the strategy only creates additional pressure on banks. The misallocation of capital has crowded out the origination of new loans, leading to a 4.8% to 5.3% drop in commercial real estate (CRE) loan originations since the first quarter of 2022. The maturity extensions have also fueled the numbers of CRE mortgages set to mature in the near future—creating a risk of a large number of losses materializing in a short period of time. Data from S&P shows that such “maturity wall” will grow to nearly $1 trillion in 2025."

Federal Reserve Bank Publishes Paper on ‘Extend-and-Pretend’ Workouts

The Federal Reserve Bank of New York released a paper last week analyzing the effects of “extend-and-pretend” mortgage modifications on the broader financial system.

www.morganlewis.com

If banks are supposed to follow GAAP accounting rules, what, exactly, do their balance sheets mean when filled with extended and pretended loans and with treasuries purchased when interest rates were 3% and held now when interest rates are 7% and have negative values? We have an economy that is simply a giant Ponzi scheme with everyone lying to everyone else about everything. And the world was insistent that saving the planet hinged on crucifying Trump over the value of a couple of tiny (as a percentage of the whole) assets.

 

[CCAAMO]

I blame Dunder Mifflen

 

[Non Sequitur]

It kinda makes you wonder what bank regulators are for (other than enabling the appearance of sound banking while looking the other way).

Pure politics with extend-and-pretend. And it was pure politics bailing out SVB's uninsured deposits. When will the politics end is anyone's guess.

 

[Bobby Bucks]

There is a repeating pattern with those properties and delinquencies usually a 12 year cycle. The strip malls begin with a mix of office spaces, maybe a medical facility or two, a wealth adviser, 2 restaurants, etc. When the bad times begin you'll see vacancies, a karate studio, a tattoo parlor and other tenants the remaining tenants don't like seeing. When it reaches a tipping point, it's not a pretty picture and the legal notices begin.

 

[Sadie]

Are we nearing the end of extend and pretend? Per this article, office building loan delinquency rates have exceeded the previous high watermark of the Great Recession. How much longer can banks pretend and how much longer will the feds let them?

"Roughly 11% of office buildings tied to CMBS loans were delinquent, beating the previous high watermark of 10.7% set during the Great Recession in December 2012, according to Trepp, which began tracking the CMBS sector in 2000."

"Office loan delinquency has nearly doubled over the past year, growing from 5.8% in December 2023."

"The Federal Reserve in November noted that delinquency rates for commercial real estate loans increased to the highest level since 2014, with late loans for office properties jumping 11% in the second quarter of 2024 for large banks."

Rate Of Office Owners Behind On CMBS Mortgages Reaches All-Time High

More than 1 in 10 U.S. office properties backed by CMBS loans are considered delinquent.

www.bisnow.com

There have been several drives to get workers back into offices instead of remote working. How successful this is will probably affect the rates, But it will be slow. Also, there are places that are considering re-configuring commercial spaces to housing. Its kind of a big lift, but it can help.

 

[Non Sequitur]

There have been several drives to get workers back into offices instead of remote working. How successful this is will probably affect the rates, But it will be slow. Also, there are places that are considering re-configuring commercial spaces to housing. Its kind of a big lift, but it can help.

True. My brother in-law works for a fed agency. They went from full covid remote, to don't worry it's permanent, to 1-2 days a week in office, to just announced get ready for full time back to the office-ETA soon.

 

[Fernando]

During the Great Recession, there were many foreclosures but banks held them in their books.
I understand that they don't want to flood the market with excess supply thus causing prices to go down further.
Somehow it worked and banks came out good.
Banks think they can do the same with their delinquent office building loans. I don't think so. Commercial is different and less in demand.