News from Washington today can only be encouraging…for a change.
Watch the following videos:
The issue has reached the White House. Why it hasn’t sooner is anyone’s guess but we cannot dwell on that. It is there now and that is all that matters. Notice one of the three recommendations? “Encourage banks to modify performing loans”. That is a direct follow-up to the recent REMIC ruling from the IRS that said the previous tax implications from doing so were being removed.
Finding it hard to come to any other conclusion that there is going to be a wave of modifications in CRE and because of that, it will become the blueprint for the General Growth (GGWPW) reorganization plan.
We have to play some politics on this one. If CRE is allowed to go the way of residential real estate (RRE), then the 2010 elections are going to be a bloodbath for Democrats as they will resided over the failure. Assuming they want to avoid that, one has to assume they will do whatever they can to assure it does not happen. With the electorate bail-out weary (and Republican’s will oppose any), I am guessing they will want to avoid a public option.
That leaves only one thing to do, really. Allow banks to modify the loans AND (most important) do it in a way that will not cause any additional impairment to their balance sheets causing them to be forced to raise additional capital. Now the question remains to be seen if this will require accounting rule changes or not, but I think it will get done.
Remember that GGP when it filed requested to be able to continue paying interested on a large percentage of their outstanding debt? One has to think they did so because it would technically remain “performing” even though they are in Chapter 11.
This is playing out beautifully….