Fed Proposes Permanent Extension of Real Estate Debt Leniency

Source: American Banker

The Federal Reserve wants lenders to remain patient with commercial real estate borrowers that struggle to service their debts.

In a policy statement proposed this week, Fed staffers petitioned the Board of Governors to make a series of tweaks to its supervisory policies that would allow financial institutions to accommodate delinquent real estate borrowers and restructure troubled loans without being penalized. This leniency would be applied even when collateral values fall below loan balances — a phenomenon often referred to as being "underwater." 

The policy would remain in effect "through all economic cycles," effectively extending the Fed's "work with your borrower" policy permanently.

Fed staffers noted a timely need for updating and solidifying these policies given upcoming expiration of COVID-era accommodations. They also pointed to ongoing uncertainty in many cities where employers are struggling to attract workers back to their offices. A May report from the Fed on economic indicators found that as of late 2021, 22% of workers still worked from home, down from the 29% seen in 2020, but up significantly from the 7% who did so in 2019.