By the end of 2010, half of all commercial real estate mortgages in the United States could be “underwater,” according to the government’s Troubled Asset Relief Program watchdog.
Translation: Americans’ financial woes are far from over.
The commercial real estate bubble will grow so large that it will become a “serious problem” that will take at least three years to address, Elizabeth Warren, who chairs the congressional oversight pannel on TARP, told CNBC on Monday.
Nearly 3,000 “mid-sized” banks have what she called “dangerous concentrations” of sinking commercial mortgages: a situation that could result in roughly half the commercial property in the U.S. becoming worth more as debt than as real estate.
“The problem here is not fundamental. It is circumstantial, and it’s deadly. These owners can’t ride out the recession because their loans are due and they’re short, or worse, upside-down,” noted Greg Rand, writing for Entrepreneur.
“There is no implicit guarantee anymore,” Warren said. “I don’t care how big you are, if you make serious enough mistakes, then your business can be entirely wiped out.”
She added that the U.S. is going to lose money on the TARP program, but not as much as first thought thanks to the for-profit sale of the government’s stake in Citigroup.
Her remarks fall on the same day that Treasury Secretary Timothy Geithner cautioned that commercial real estate would be a “problem” in coming years that the government should be able to handle.
“Geithner also said the Treasury Department’s announcement that it will begin selling the stake it owns in Citigroup Inc., which could net about $7.5 billion to the government, shows ‘how far we’ve come’ in exiting from the financial bailout program,” the Associated Press reported.
The TARP’s Congressional Oversight Panel said U.S. banks stand to lose over $300 billion on risky commercial lending.
This video is from CNBC, broadcast Monday, March 29, 2010.