Federal Reserve Chairman Ben S. Bernanke said a potential wave of defaults in commercial real estate may present a “difficult” challenge for the economy, without committing to additional steps to aid the market.
Bernanke, testifying before the Senate Banking Committee today, urged lenders to modify “problem” mortgages to avert defaults. …
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It “may be appropriate” for the government and Congress to consider “fiscal” steps to support the industry, Bernanke said today. Ideas for fresh support for the market could include government guarantees for commercial mortgages, Bernanke also said today, while noting no proposal on the subject has emerged.
Here’s the argument for this, encapsulated in last week’s bit on the Red Rose Commons foreclosure:
If the bank were to seize the property and resell it - possibly for far less than it was “worth” a few years ago - then the new owner rightly comes in and says, look, we want this to be reassessed.
And if it is reassessed and the new assessment is lower, suddenly the City of Lancaster and the School District of Lancaster are getting less in tax revenue from this shopping center.
That’s the legitimate argument for it, though whether that’s enough to guarantee commercial mortgages with taxpayer money is an open question. The other argument is this:
“As the recession’s gotten worse in the last six months or so, we’re seeing increased vacancy, declining rents, falling prices — and so, more pressure on commercial real estate,” Bernanke said yesterday.
Well, you know, all this is too bad for the commercial investor/developer - but this alone certainly doesn’t make the commercial crisis to the taxpayers’ responsibility.
