Bank Regulators Just Might Make Loan Workouts A Little Easier

Federally regulated lenders, such as banks, still play a major role in commercial real estate financing. As commercial real estate encounters headwinds, borrowers will often need relief from those lenders, but regulated lenders typically cower in fear about doing anything that might cause regulators to raise their eyebrows or ask difficult questions. This mentality often leads regulated lenders to behave with a level of flexibility, creativity, cooperation, and speed reminiscent of the Internal Revenue Service. Result: workout negotiations can become difficult or impossible. Sometimes a loan that might have been “saved” if given more time and TLC instead goes into default and foreclosure.

The federal bank regulators may have tried a bit to change that dynamic when they recently issued a joint policy statement on commercial real estate loan accommodations and workouts. Whether anything has actually changed will, of course, remain to be seen.