"New Rules" Hope to Stave Off Commercial Real Estate Defaults

Mortgage services face a potential minefield of problems as New Rules Ease the Restructuring of CMBS Loans.

The Treasury, responding to the growing pain in the commercial real-estate industry, released new tax rules that make it easier for distressed property owners to restructure loans that were packaged by Wall Street firms and sold as securities.

Most in the real-estate industry, which lobbied intensely for the move, applauded the action. But some warned it has opened a Pandora's box, especially for servicers of the securities who will likely come under new pressure from borrowers and competing classes of investors.


The move is the first round of "additional guidance" the Treasury is weighing to stave off what many fear will be a commercial real-estate crisis, according to people familiar with the matter.

But some investors holding CMBS bonds are watching nervously because loan modifications, known as "mods," mightn't always be in their best interest. CMBS have junior and senior pieces, and the senior holders may be in a better position, when a borrower defaults, to foreclose and liquidate the property rather than modify the loan. Junior holders, on the other hand, might benefit from a mod because they mightn't get their money back in a forced sale.

"The biggest concern is that the guidance could open the floodgate for everyone to try to get some sort of loan modifications," said Aaron Bryson, a CMBS analyst at Barclays Capital. "There is a tremendous burden on the servicers to uphold their end of the bargain."

The move by the Treasury reflects the deep concern in government and industry circles over the problems looming in the $6.5 trillion market for commercial real estate. Just as the U.S. economy is struggling to regain its footing, defaults are mounting because of credit-market turmoil, along with declining property cash flows and plunging property values.

Previously, because of tax laws, servicers would not modify terms unless someone fell behind on payments. Now, many who can afford to pay will seek relief. As a result, servicers will have a more difficult time of deciding who is solvent and who is not, and what the right thing to do in picking winners and losers between junior and senior holders.

That the Treasury has to change such rules on the fly shows their concern over just how fragile this "recovery" is.

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Canadian Dollar Down as Crude Oil Declines

The Canadian dollar, which started the week with an outstanding performance as traders, attracted by yield and driven by optimism, bought the loonie, fell today against several currencies as the crude oil, the main Canadian commodity export, declined.

Canadian Dollar Down as Crude Oil Declines

The Canadian dollar, which started the week with an outstanding performance as traders, attracted by yield and driven by optimism, bought the loonie, fell today against several currencies as the crude oil, the main Canadian commodity export, declined.

Yen Rises After Hotel Blasts in Indonesia

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Mexican Peso Falls Again on Crude Oil

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Australian Dollar Hits Two-Week High on Stocks

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Brazilian Real Hits 9-Month High on Economic Optimism

The Brazilian currency posted another day of gains versus most of the main traded currencies and hit a 9-month high against the greenback as corporate earnings came better than expected combined with a rise in commodity prices.

Russian Ruble Climbs Intensively on Crude Oil Rally

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Pound Slides Versus Majors on Public Deficit

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Dollar Rebounds on CIT Group Concerns

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Yen Rebounds on Global Banking Situation Concerns

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British Pound Weakens on House-Prices Decline Forecast

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Dollar Down as Risk Appetite Spurs Demand for Yield

The greenback posted a negative performance today as a decreased demand for safety made investors to leave the U.S. currency attracted to riskier assets in emergent markets.