Federal Reserve Board Chairman Ben Bernanke called for more workouts to repair commercial real estate loans, like the modifications officials have urged for home loans.
Bernanke told the Senate Banking Committee Wednesday that the central bank is encouraging "banks to work out commercial real estate projects which are no longer performing."
He said the effort is part of a "two-pronged approach" to address commercial real estate problems that resemble the earlier threats to the housing sector. The Fed has also tried funding private purchases of commercial mortgage-backed securities through its Term-Asset Backed Securities Loan Facility.
"We have seen now in the last six months or so that vacancy rates are rising, rents are falling, prices are falling and financing conditions for commercial real estate have gotten more difficult," Bernanke said in his second day of congressional testimony on the state of the economy.
"In the same way that banks should be encouraged to try to work out defaulting mortgages for residential borrowers, it's in their interest to try to make arrangements to work out problem loans in the CRE area as well. Many banks will be facing very extensive amounts of CRE challenges going forward."
Bernanke reiterated that he is open to extending the Talf, which has been slow to attract interest, if the commercial mortgage-backed securities market has not opened up by the program's current expiration date of Dec. 31.
