[Congressional Record Volume 156, Number 66 (Wednesday, May 5, 2010)]
[House]
[Pages H3179-H3181]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
COMMERCIAL REAL ESTATE
The SPEAKER pro tempore. Under a previous order of the House, the
gentleman from California (Mr. Calvert) is recognized for 5 minutes.
Mr. CALVERT. Mr. Speaker, tonight I want to discuss an important
issue that is significantly impacting our economy but has not received
nearly enough attention and action by the administration and this
Congress. If the issue is not addressed, it will continue to drag down
and harm our already shaky national economy.
I am referring to the deterioration of the commercial real estate
sector. Now, when I speak of commercial real estate, I am talking about
properties that can be found in every community in America: retail
properties, office space, industrial facilities, hotels, and
apartments. Similar to the residential real estate crisis we
experienced, the commercial real estate market faces significant
strains as a result of declining property values, refinancing
difficulties, and economic uncertainty.
Commercial real estate values throughout the United States are
collapsing, going down as much as 40 to 50 percent in some regions. We
have seen this happen in parts of southern California, in my own
congressional district. I know we have seen it in many other parts of
the country from New York to Idaho and Nevada to Florida. Most experts
predict that the declining trend in commercial real estate values will
continue through 2011 and 2012.
Many economists are concerned by this trend because the health of our
commercial real estate market has a direct and lasting impact on the
stability of thousands of small businesses, and small and midsize
banks, which could result in significant job losses across the country.
The commercial real estate sector provides more than 9 million jobs and
generates billions of dollars in Federal, State, and local tax revenue.
Additionally, many property owners are underwater. An analysis by
Deutsch Bank indicates that of the almost $1.4 trillion in commercial
real estate loans that will mature over the next 4 years, as many as 65
percent will struggle with refinancing, even if they are performing
loans with payments being made on time.
The Congressional Oversight Panel, created by Congress in 2008 to
review the current state of our Nation's financial markets and
regulatory system, dedicated an entire report to the commercial real
estate liquidity crisis, entitled ``Commercial Real Estate Losses and
the Risk to Financial Stability,'' which was released on February 11 of
this year. The report estimates that bank losses alone could range as
high as $200 billion to $300 billion. The panel wrote, ``A significant
wave of commercial mortgage defaults would trigger economic damage that
could touch the lives of nearly every American.''
This week and next, many of my fellow colleagues in Congress will be
visited by members of the National Association of Realtors as part of
their annual meeting in Washington, D.C. They will talk about how the
commercial real estate market is in the midst of a serious financial
crisis and share stories of how small businesses across the country
continue to suffer. Many of my colleagues and economic experts agree
that the continuing crisis in the commercial real estate market could
lead to a double-dip recession.
Due to the growing economic threat of the faltering commercial real
estate market, I spearheaded a bipartisan effort with my friend from
Pennsylvania, Congressman Paul Kanjorski, to raise these concerns to
Secretary Tim Geithner and Federal Reserve Chairman Ben Bernanke on
January 29 of this year. The letter, signed by 77 of our colleagues,
called for the establishment of a clear method for measuring the
effectiveness of recently announced commercial real estate loan
modification guidance. Furthermore, the letter called on Secretary
Geithner and Chairman Bernanke to institute metrics that will allow
banks to more clearly differentiate performing versus nonperforming
loans in order to treat them appropriately.
On February 17 of this year, I once again joined Mr. Kanjorski to
author a letter addressed to the heads of the FDIC, OTC, OCC, and NCUA
to bring to their attention our concerns and highlight the findings of
the February 11 Congressional Oversight Panel report on ``Commercial
Real Estate Losses and the Risk to Financial Stability.'' The letter
``urged the regulators to work together and work with the Treasury and
the Fed to minimize the impact this problem will have to our economy.''
On March 16 Secretary Geithner testified before the House
Appropriations Committee regarding the fiscal year 2011 budget and
economic outlook. At the hearing I asked the Secretary directly what
steps he intended to take to address the liquidity problems in the
[[Page H3180]]
commercial real estate sector. Secretary Geithner's response was, ``We
have a ways to go to get through the broader adjustment in the
commercial real estate that is still ahead of us.''
{time} 1615
The administration must take deliberate action to enhance liquidity
in the commercial real estate market to avoid the derailment of our
economic recovery. Congress can play a role in advancing solutions by
closely examining the current status of commercial mortgage market
liquidity through oversight hearings with Federal Reserve Chairman
Bernanke and other regulators. I call on the Financial Services
Committee to hold such a hearing by the summer to reveal the true state
of this sector of our economy and discuss regulatory and legislative
fixes. The upcoming field hearing on May 17 in Chicago is a good start,
but more attention needs to be made. The spotlight of oversight is all
Congress needs to do at this time--the power to do something about this
problem is in the administration's hands already.
In closing, I truly hope the administration will take the necessary
steps to prevent further economic damage and provide a fix for
commercial real estate.
Congress of the United States,
Washington, DC, January 29, 2010.
Hon. Timothy F. Geithner,
Secretary, U.S. Department of the Treasury, Washington, DC.
Hon. Ben S. Bernanke,
Chairman, Board of Governors of the Federal Reserve System,
Washington, DC.
Dear Secretary Geithner and Chairman Bernanke: As you know,
the financial crisis continues to have a dampening effect
throughout the credit markets. The commercial real estate
(CRE) market, in particular, continues to experience
difficult credit accessibility conditions. Moreover, the
scarcity of credit in the $63 trillion CRE sector poses a
dangerous threat to our financial system just as our economy
has begun to show signs of recovery.
Earlier this month real estate data provider Trepp
announced that the delinquency rate for loans underlying
commercial mortgage-backed securities (CMBS) ballooned 500
percent in 2009, surpassing 6 percent in December for the
first time. Additionally, the CMBS market has all but shut
down over the past year making it more difficult for CRE
owners to sell or refinance.
We appreciate the acknowledgement by federal regulators of
this situation in October, when the Board of Governors of the
Federal Reserve System, along with the Federal Deposit
Insurance Corporation, the Office of the Comptroller of the
Currency, the National Credit Union Administration, and the
Office of Thrift Supervision, issued a policy statement
advising financial institutions to extend and/or restructure
loans backed by income-producing and/or development
properties whenever possible in order to minimize losses as
well as to stabilize overall asset values in the communities
they serve.
While the regulatory guidance is a relatively recent
occurrence, we remain concerned by early indications that it
may not yet be having the desired impact in stabilizing the
CRE market. While some properties are in desperate need of
modification due to the economic downturn, we are not
convinced these loans are being serviced properly or in an
efficient manner. Of even more concern, anecdotal evidence
suggests that regulators continue to encourage lenders to
write down the value of performing loans, whose payments may
well be current and, in some instance, even call the loan.
This further exacerbates the crisis by creating defaults in
properties that were able to meet their debt servicing.
To ensure the recent CRE loan modification guidance will
have a positive and stabilizing effect, and to protect the
broader economy from further disruptions, we urge you to
establish a clear method for measuring and evaluating its
effectiveness. Furthermore, we encourage you to institute
metrics to more clearly differentiate performing versus non-
performing loans as well as any other steps that provide
lending institutions with more confidence in assessing CRE
loans. We also call upon you to make clear public statements
encouraging lenders to continue to make credit available for
performing assets as a means of restoring confidence and
long-term value in the CRE market.
In sum, we strongly believe that regulators must take
continued steps to mitigate ongoing turmoil in the CRE sector
before it becomes a full-fledged crisis, forestalls our
economic recovery, and possibly requires additional taxpayer-
funded capital injections. Consistent with all applicable law
and regulation, thank you for the consideration of our views
and your attention to these matters.
Sincerely,
Paul E. Kanjorski, Judy Biggert, Bill Foster, Dennis
Moore, Gary L. Ackerman, Ken Calvert, Chris P. Carney,
Joseph Crowley, Luis V. Gutierrez, Sander M. Levin,
Steve Israel, Mike McIntyre, Suzanne M. Kosmas, Laura
Richardson, Charles A. Wilson, Russ Carnahan, Ron
Klein, Jo Bonner, Henry E. Brown, Jr., Andre Carson,
Bobby Bright, Steve Driehaus, John Campbell, Ben
Chandler, John Lewis, Kathy Castor, David Scott,
Shelley Berkley, Donald A. Manzullo, Michael E.
McMahon, Dan Burton, Lynn A. Westmoreland, Baron P.
Hill, John Culberson, Timothy H. Bishop, James P.
Moran, Melissa L. Bean, Carolyn B. Maloney, Glenn C.
Nye, Dina Titus, Pete Olson, Bill Pascrell, Jr., Howard
Coble, Kay Granger, C.W. Bill Young, Doug Lamborn, Gary
Miller, Shelley Moore Capito, Debbie L. Halvorson, Gary
C. Peters, Bob Inglis, Jeff Miller, Tim Matheson,
Vernon J. Ehlers, Geoff Davis, Alcee L. Hastings, Jim
Marshall, Peter Welch, Connie Mack, John A. Yarmuth,
Jerry Costello, Ginny Brown-Waite, Cliff Stearns,
Patrick J. Murphy, Gerald E. Connolly, Brett Guthrie,
Bruce Braley, Ruben Hinojosa, Joe Wilson, Thomas J.
Rooney, Rick Larsen, Alan Grayson, Gregory W. Meeks,
Robert B. Aderholt, Jim Gerlach, Mike Turner, Edolphus
Towns, Chris Lee, Charles Boustany, Jr.
____
Congress of the United States,
Washington, DC, February 17, 2010.
Hon. Sheila C. Bair,
Chairman, Federal Deposit Insurance Corporation, Washington,
DC.
Hon. John C. Dugan,
Comptroller of the Currency, Office of the Comptroller of the
Currency, Washington, DC.
Mr. John E. Bowman,
Acting Director, Office of Thrift Supervision, Washington,
DC.
Hon. Deborah Matz,
Chairman of the Board, National Credit Union Association,
Alexandria, VA.
Dear Chairman Bair, Comptroller Dugan, Acting Director
Bowman, and Chairman Matz: As you are aware, the commercial
real estate market continues to face significant strains as a
result of declining property values, refinancing
difficulties, and economic uncertainty. Some have predicted
that these problems have the potential to cause hundreds of
billions of dollars in losses as loans come due in the next
few years.
We now write to bring your attention to a recent report by
the Congressional Oversight Panel, entitled ``Commercial Real
Estate Losses and the Risk to Financial Stability,'' released
on February 11, 2010. The report indicates that about $1.4
trillion in commercial real estate loans will reach the end
of their terms between now and 2014 and that nearly half of
these mortgages are currently underwater as property values
have declined and continue to do so. The report estimates
that losses at banks alone could range as high as $200
billion to $300 billion.
Moreover, the Congressional Oversight Panel found that the
impact of massive commercial mortgage defaults could be far
reaching:
``A significant wave of commercial mortgage defaults would
trigger economic damage that could touch the lives of nearly
every American. Empty office complexes, hotels, and retail
stores could lead directly to lost jobs. Foreclosures on
apartment complexes could push families out of their
residences, even if they had never missed a rent payment.
Banks that suffer, or are afraid of suffering, commercial
mortgage losses could grow even more reluctant to lend, which
could in turn further reduce access to credit for more
businesses and families and accelerate a negative economic
cycle.''
The full report can be found online at http://
cop.senate.gov/reports/library/report-021110-cop.cfm.
The findings of the Congressional Oversight Panel have only
heightened our concerns about the need for the government and
regulators to act to mitigate a serious problem before it
becomes a major drag on our financial system. Joined by 77 of
our House colleagues, we recently sent to Treasury Secretary
Timothy Geithner and Federal Reserve Chairman Ben Bernanke
the enclosed letter about the impending troubles in the
commercial real estate sector. We called upon them to take
action to address this problem, and we urge each of you to
work together and with them to minimize the impact this
problem will have on our economy.
In sum, thank you for your consideration of our concerns.
Please also continue keep us regularly advised of your
progress in addressing this serious problem.
Sincerely,
Paul Kanjorski,
Member of Congress.
Ken Calvert,
Member of Congress.
[[Page H3181]]
____
Appropriations Full Committee Hearing on FY2011 Budget & Economic
Outlook with Peter Orszag, Tim Geithner, and Christina Romer
10:00AM-March 16, 2010, 2325 RHOB
Hearing Transcript from Rep. Ken Calvert Exchange with Treasury
Secretary Tim Geithner on Commercial Real Estate Markets
Chairman OBEY. Mr. Calvert.
Mr. CALVERT. Thank you, Mr. Chairman.
I apologize, I was away for a while. I was on the floor.
And this may have been brought up, which is the problem with
the commercial real estate sector at the present time.
As you know, commercial real estate values throughout the
United States are literally collapsing, going down as much as
40 percent, 50 percent in some areas. And most experts assume
that this continuing collapse in commercial real estate
values will continue through 2011, 2012.
Deutsche Bank just did, in a recent study, of about $1.4
trillion in outstanding. commercial paper, a significant part
of that will come due by 2013. Almost half of it is
underwater.
As you know, a lot of these small and midsized banks are
primarily exposed to these commercial loans. And the
regulators in day-to-day activities aren't helping much,
especially on the performing assets. We have performing
assets where people are making their payments, making their
tax payments, making their insurance payments, are current,
and yet the bank is bringing them in because of appraised
values and telling them to come in with a significant capital
call, which they can't do in this credit market.
And what the banks are doing is taking back the property,
having to put it in the loan loss side of their ledger, which
is taking credit away from these banks, because they don't
have the money.
So what can we do--this wouldn't, from my perspective, cost
the government anything. If banks have discretion on
performing assets, why aren't the banks given discretion to
footnote that these assets--and they are assets--are current
and can be treated as an asset rather than a liability on the
balance sheet?
Secretary GEITHNER. You are right about the problem, and
you are right that we have a ways to go to get through the
broader adjustment in commercial real estate that is still
ahead of us. And we discussed it a little bit when you were
away, but I think, again, the two most important things we
can do in this area is to make sure that small community
banks, which have a lot of commercial real estate exposure,
have the ability to come take capital from the government to
help make sure they don't have to cut lending further to
their business clients.
But, also, we can--and we have been continuing to work with
the bank supervisors, so they are providing guidance to their
examiners and that message gets out across the country that
they don't, frankly, overreact, overreact to decline in the
value of collateral and they look at the broader cash flows,
earnings potential of the company as a whole, as they are
looking at loan classification decisions.
Mr. CALVERT. I have a limited time. If the gentleman would
let me reclaim my time.
I will tell you, in the real world right now, I know of
people who have shopping centers, 100 percent full shopping
centers, paying their bills, and yet they are still getting
capital calls on those loans, which makes zero sense.
Secretary GEITHNER. No, I think you are right. I hear these
stories across the country. I think you are right to
emphasize them. And I just need to underscore that the bank
supervisors, which are independent of the Treasury--I don't
have the capacity to direct what they do, in this case--are
working to provide a little bit more balanced guidance to
lean against just the practices you are shining a light on.
And I think they can probably do a better job of getting the
message out to----
Mr. CALVERT. But this also goes back to the mark-to-market
provisions. And I understand that there may be, from my
perspective, a step back in this economy where you have an
overcorrection in value, where we ought to take a look at
relaxing those mark-to-market provisions on performing
assets. Because, under the accounting rules, they are going
to continue to deflate--this is going to continue to deflate
these values. And that is not going to be helpful in trying
to get this economy moving again.
I am fearful--I don't know if you are--that this commercial
real estate problem is so huge that it could put us back into
a double-dip recession.
Secretary GEITHNER. I do not believe it poses that risk at
the moment. I think, again, it is going to be a challenge----
Mr. CALVERT. We thought the same thing about the housing
market.
Secretary GEITHNER. We did. But I think this is different,
and our financial system is in a much stronger place today to
weather those remaining challenges.
As you know, the FTC and the FASB are looking at a whole
range of broad reforms to accounting practices in the United
States. And I think they would be happy to talk to you, to
respond to any questions you have about how to think about
the role fair value accounting can play in mitigating these
kinds of pressures in the future.
Mr. CALVERT. Thank you, Mr. Chairman.
____
[From the Press-Enterprise PE.com, Mar. 18, 2010]
Prevent a Double-dip Recession
(By Ken Calvert)
A recent P-E article cited local economic forecasts that
suggested the Inland Empire will continue to lose jobs well
into 2010 (``Small businesses still pessimistic,'' March 12).
As residents know all too well, the drastic downturn in
residential construction and international trade has
significantly impacted our region's economy.
Businesses hire when they see an economic opportunity to
increase the sale of the goods or services, not when the
government provides a one-time tax credit to hire. When
businesses are ready to grow, they often need financing in
order to make big purchases. However, small businesses around
the country are struggling to get the credit necessary to
grow as banks tighten lending standards in the aftermath of
the financial crisis on Wall Street.
Businesses may find it even harder to obtain credit as they
begin confronting liquidity challenges in the commercial real
estate market. Recent analysis conducted by Deutsche Bank
analysts indicates that of the almost $1.4 trillion in
commercial real estate mortgages due by 2013, as many as 65
percent may struggle with refinancing, even if they are
performing loans that are completely current.
If the conditions in the commercial real estate market
deteriorate further, the negative effects will be significant
and widespread. If community banks are forced to close or
further tighten lending standards, small businesses will find
it even harder to obtain financing sources and our economy
will lose its tenuous grasp on a recovery and dip back
further into recession.
Due to this growing economic threat, I spearheaded a
bipartisan effort to raise these concerns to Treasury
Secretary Timothy Geithner and Federal Reserve Chairman Ben
Bernanke. In a letter to the regulators, 78 of my colleagues
and I proposed that a clear method for measuring the
effectiveness of recently announced commercial real estate
loan modification guidance should be established. Also, the
letter called on the officials to institute metrics that will
allow banks to more clearly differentiate performing versus
nonperforming loans in order to treat them appropriately.
The regulators also should give banks the flexibility to
account for performing loans as an asset, not a liability,
something that could be achieved with a simple change in
accounting practices. This would actually increase
transparency as well as free up capital that could be loaned
out into the market. Most important, the fix would not cost a
dime to American taxpayers or require any form of a bailout.
Our current economic situation could aptly be called the
speculators' recession and, if the administration does not
take action, this second dip would be known as the
regulators' recession.
No legislation is needed for the fix. The administration
can address the liquidity issues facing small businesses and
the commercial real estate market by providing correct
guidance to the bank regulators. A proactive and engaged
response can prevent a doubledip recession and ensure small
businesses can grow and start hiring again.
____________________