A Rolling Loan Gathers No Loss

Upon seeing my good friends in San Diego early in November during the NAR Conference, and meeting several new ones from across the globe, I realized that success couldn’t be had without listening and learning from the people in our lives. Of course, I am far from the epitome of success in some eyes, but for me, life could not be better.

At dinner Saturday night, one of real estate brightest minds, a client and more importantly a good ‘bud,’ Michael Anderson, Founder and co-owner of RealSource.net, was talking about today’s distressed asset marketplace and that of the late 1980’s and early 1990’s during the days of the S&L crisis. At one point in his analysis he mentioned, “a rolling loan gathers no loss.” Never hearing anything like that before, Mike explained that during the S&L days a major accounting principle leading to the fiasco was when a bad loss came on a bank’s books they simply exchanged it for another in order to trick an auditor into thinking the loan had been paid off (Mike, I hope I recalled that correctly).

It got me thinking… is this happening today? Or, will it happen as a result of the federal government’s approval? On Halloween of 2009 federal bank regulators issued guidelines allowing banks to keep loans on their books as “performing” even if the value of the underlying properties has fallen below the loan amount.

Consider… According to a November 4 Federal Reserve report, U.S. banks held $1.65 trillion of commercial real estate loans on their balance sheets, or total assets worth $11.8 trillion. Huge numbers.

So, what do you think? Will these guidelines stop, postpone or exacerbate the looming day, week, month or year of commercial real estate loans coming due in 2010 and 2011? Will they create a crisis on the same level – or even greater –than then residential sub-prime crisis? Our readers would like to know.