The report, entitled "Commercial Real Estate at the Precipice," said that under lenient underwriting standards, 56.8 percent of existing commercial mortgages wouldn't qualify for refinancing. Using conservative standards, two thirds won't make the grade.
That suggests that lenders will have to extend loans, much like they've tried to freeze adjustable-rate residential mortgages at their original lower rate to avoid a foreclosure. Even if the commercial loans are simply extended for a year or two, however, commercial real-estate prices are forecast to keep dropping so the time bomb will be delayed not defused, the report concluded.
"In our view, much of these losses are unavoidable, even in a mass (loan) extension environment," wrote Richard Parkus, the report's author.
Forecaster Moody's Economy.com expects $375 billion in losses on the $3.5 trillion in commercial mortgage loans and securities outstanding. That a loss rate of about 11 percent, nearly twice the rate of home mortgage foreclosures, and the forecaster thinks that about $200 billion of those commercial losses are still ahead.
