IRS Rule Change Leads To Spike In Commercial Loan Modifications
South Lake Tahoe, United States (IBwire.com - October 02, 2009) The IRS rule change issued on September 15, 2009 allows loan servicers and commercial property owners to agree on a workable modification before a default of the loan. Prior to this change, owners of commercial property could only get a small change in the terms because a major change would jeopardize the REMIC's tax exempt status.
REMIC's are essentially trusts that were established to purchase loans from commercial mortgage bankers. These trusts would then sell the income stream as an investment vehicle on Wall St to institutional and individual investors.
The market for CMBS investments broke down following the sub-prime crisis in 2008. The Federal Reserve has made efforts to restore liquidity to that market with the TALF (term asset lending facility) program which funds loans to owners of recently issued CMBS.
From 2005 - 2007 about 70% of commercial loans were packaged into CMBS. Many of these loans were made with loose underwriting standards to feed the demand for high yield investments. These loans typically have a 3 to 7 year maturity. With the commercial real estate price deflation that is occurring and the tightening of lending standards, property owners will have a hard time finding financing.
"We have seen an increase of 30% in lead production at commercialmodification.com since the IRS changed the rules two weeks ago" says Ted Schmidt, President of Leadsnet, Inc., a leading provider of commercial mortgage modification leads.
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Friday, October 2, 2009
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