FDIC Issues Statement to Save the Baby

The FDIC released the recent Policy Statement on Prudent Commercial Real Estate Loan Workouts to avoid throwing the baby out with the bathwater:

“This policy statement stresses that performing loans, including those that have been renewed or restructured on reasonable modified terms, made to creditworthy borrowers will not be subject to adverse classification solely because the value of the underlying collateral declined.”

Find the press release HERE or download the full Policy Statement HERE (PDF) or you can find it in our CRE Trends library HERE.

This takes the valuation pain out of the equation for a significant amount of CRE loans and will be used aggressively to buy time for the underlying business fundamentals to right themselves. As for those ludicrous deals that never made business sense and were based on using unrealistic or fraudulent assumptions….they’re going down hard and business Darwinism will take over. Those firms and properties will be culled from the herd and repurposed or sidelined until they can be made productive or useful again. The faster the better with respect to anything based on bad business modeling.