| Experts have been predicting that the commercial real | | | | monthly payments are based on a longer term. To |
| estate sector will also experience a crisis that may | | | | illustrate, the computation for the monthly payments |
| even be worse than that of the residential housing | | | | may be based on a term of 20 years but the actual |
| market. The unabated rise in unemployment and the | | | | term may only be five years. Thus, there is a |
| increasing number of vacancies in commercial | | | | substantial amount to be paid at the end of term. |
| properties are indicators of this impending trouble. This | | | | Ordinarily, the property owner will either sell the |
| is understandable because this kind of situation makes | | | | property or find a lender for the refinancing of the |
| it more difficult for property owners to come up with | | | | amount that is due as balloon payment. However, |
| the mortgage payments, much less the balloon | | | | experts believe that looking for refinancing would be |
| payment that is required at the end of the term. Like in | | | | very difficult because of the tight money supply and |
| the residential sector, this could result into an avalanche | | | | the drastic decline in property values. For the same |
| of defaults and foreclosure filings that could further | | | | reason, finding buyers would also be very hard unless |
| damage the economy. Fortunately, commercial | | | | the asking prices are substantially reduced. |
| mortgage modification is one of the potential solutions | | | | A commercial mortgage modification may also involve |
| to this problem. | | | | the deferment or postponement of payments. For |
| For example, the lender may allow a permanent or | | | | example, the lender may grant the borrower three to |
| temporary decrease in interest rate as a way to help | | | | six months of payment moratorium. This will allow the |
| the borrower get back on track with the payments. | | | | borrower more time to accumulate cash and find |
| Even a one percent interest reduction can bring down | | | | tenants for the vacant units. |
| the debt burden by thousands of dollars every month. | | | | In view of the impending crisis, financial regulators have |
| This kind of commercial mortgage modification could | | | | expressed their support for commercial mortgage |
| help a lot in giving the property owner some room to | | | | modification and urged banks to try to approve more |
| recover while waiting for the economy to recover and | | | | loan workouts. Of course, they have also cautioned |
| the vacancies to get filled again. | | | | banks to continue to use the proper lending standards |
| Another strategy that can be used in commercial | | | | when evaluating such application work loan workouts |
| mortgage modification is to extend the duration or | | | | and determining the creditworthiness of a borrower. |
| maturity of the loan. This is helpful in postponing the | | | | But the regulators know that adjustments to the terms |
| balloon payment or avoiding it altogether and it will also | | | | of the loans could help both the lenders and the |
| bring down the amount for the monthly payments. | | | | borrowers and could contribute to the faster recovery |
| Balloon payments are usually required because | | | | of the economy. |
| commercial loans often have short terms but the | | | | |