Earlier this week, Fed Chairman Ben Bernake appearing on Capitol Hill said that commercial mortgages packaged into CMBS "ought to" be modified the same way residential mortgage backed securities are now.
The total arrears on all CMBS reached $817 billion in June. This represents a 4.5% delinquency rate. This has increased from a 2% rate last year and is expected to reach $1 Trillion by the end of the year.
On Friday, Treasury Secretary Timothy Geithner, appeared before the House Financial Services Committee.
Rep. Carolyn Maloney, who described the commercial mortgage situation as a "ticking time-bomb" questioned Geithner about commercial loan modifications. She asked what administrative guidance the Treasury will issue as they did with residential modifications. He said "we have not made a judgment as to whether that is necessary, appropriate or possible and he would be willing to discuss it in more detail".
Rep. Maloney went on to ask what the problem is with giving modifications on CMBS the same as residential mortgage backed securities. He said "it is an enormously complicated set of issues and we will talk to you and your staff about it later".
We will have to wait and see what will happen in the coming months as the fuse burns down. It is obvious by Giethners testimony that our leadership in Washington has no plan to deal with this issue. Giethner does not even know if it is necessary?
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