Lawmakers Seek Relief for Businesses Struggling to Make Mortgage Payments
The market for commercial-mortgage backed securities is roughly $550 billion. A concerning number of office buildings, shopping malls, and hotels who borrow money in this market have not been able to negotiate debt reprieves during the coronavirus pandemic and are worried that they will lose their properties to foreclosures.
"The troubles stand in contrast to other types of debt such as home mortgages, where borrowers have been able to pause payments for as much as a year as part of the more than $2 trillion stimulus package signed in March", the Wall Street Journal reports.
The bipartisan group of representatives advocating for this group wrote a letter to Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell asking for a lending facility to be set up in order to support the borrowers during the pandemic. "Without a long-term relief plan in the face of an elongated crisis, CMBS borrowers could face a historic wave of foreclosures starting this fall, impacting local communities and destroying jobs for Americans across the country," the letter reads.
Jerome Powell told the House of Representatives last week that Congress is better suited to deal with this issue. Steven Mnuchin said in a senate hearing "this is a technical issue and we may need to come back to Congress to work with you on a technical fix". However, Mr. Mnuchin did not offer any specific plans.
"Some 7.15% of CMBS loans were 30 or more days delinquent at the end of May, including 19% of hotel loans and 10% of retail loans, according to data from Trepp." The market is structured so that it is very difficult to provide relief for borrowers. "Special servicers" are hired to negotiate for the bondholders that own the loans. "Hotel owners who have contacted their special servicers to pause payments say they have been met with silence, long waiting periods and demands for upfront cash. Hotel occupancy fell sharply after the pandemic hit."
The American Hotel and Lodging Association said that it has been harder for hotel owners with CMBS loans to receive payment relief than those with standard commercial loans from banks. "The Office of the Comptroller of the Currency, a key bank regulator, encouraged banks to offer payment accommodations for all customers during the early days of the pandemic."