Amid gloomy reports on the economy in general and real estate in particular, the first bright spot has appeared at last:

Federal bank regulators have taken steps to ease the real estate credit crunch.

The move, which received relatively little notice, can have widespread impact on the real estate recovery - and ultimately on the economy as a whole.

Reserve Additions Avoided

Federal regulators have issued guidelines that require bank examiners who are determining the sum a bank should reserve against a real estate loan to consider the borrower's ability to pay.

This is a very important step. Banks will no longer be required to set up reserves if the current fair market value of the real estate held as security is less than the debt and the borrower has a good credit rating and is current in payments.

The new guidelines stipulate that there is no automatic rule that loans must be written down to the liquidation value of the real estate asset.

Other factors will now be weighed in determining loan policy, including the prospects for long-term growth in value of the property and the borrower's financial condition.

Federal Control Diminished

The impact of this move cannot be overestimated. The new guidelines will loosen the exceptionally tight reins the federal government has had on bank real estate loans.

Many in our industry have decried the severity of these restrictions, which, even acknowledging the excesses of the 1980s, were strangling rather than controlling the real estate industry.

The new guidelines will have a stabilizing influence on the marketplace and will begin to bring in much-needed liquidity.

The yardstick for extending loans will be the borrower's credit rating and ability to make payments, not the current value of the real estate.

Previously, banks were forced to write down their loans to the fair market value of the property - the price at which real estate could be sold in today's depressed market.

For example, if a bank carried a $10 million loan on a property now worth only $8 million, the bank had to write down the loan by $2 million and take a loss reserve for that writedown.

This has had an unfavorable impact on bank profits, but in the future the new rules should have a positive affect.

Lowering the Obstacles

This is significant, considering that banks now have about $400 billion in commercial real estate loans in their portfolios.

There are many good properties on the market today and many interested buyers.

With prudent restraint rather than an absolute cutoff of loan activity, the economy of the real estate market can begin to show improvement.

Mr. Brown is chairman and chief executive officer of Rubloff, a national real estate firm based in Chicago.

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