Friday, February 19, 2010

Elizabeth Warren on CRE

by Bill McBride on 2/19/2010 05:01:00 AM

We started discussing the coming Commercial Real Estate (CRE) bust in 2006, and the FDIC was well aware of the potential CRE problems back then. See the last graph in this post from 2006 from an FDIC report concerning "emerging risks": Economic Conditions and Emerging Risks in Banking

During the bubble, the small and regional banks were locked out of the residential market (lucky for them!), but many of these banks became overexposed to Construction & Development (C&D) and CRE loans. Now that the CRE bust is here - and is about to get much worse - many small and regional banks will fail over next couple of years.

From V. Dion Haynes at the WaPo: In D.C., more evidence that commercial real estate headed for foreclosure crisis

"There's been an enormous bubble in commercial real estate, and it has to come down," said Elizabeth Warren, chairman of the Congressional Oversight Panel, the watchdog created by Congress to monitor the financial bailout. "There will be significant bankruptcies among developers and significant failures among community banks."
...
Nearly 3,000 community banks -- 40 percent of the banking system -- have a high proportion of commercial real estate loans relative to their capital, said Warren, whose committee issued a report on commercial real estate last week.
There is much more in the article.

Here is the TARP Congressional Oversight Panel released last week on Commercial Real Estate (CRE): Commercial Real Estate Losses and the Risk to Financial Stability.