How Commercial Mortgage Modification May Contribute To The Economy By Expert Author: Michael Bartonolis \| Article Abstract
Word Count: 516 words \| Views: 145 view(s)

Economic experts have been foreseeing the emergence of a crisis in the commercial property market that could even be worse than that situation in residential housing. The increasing number of vacancies in commercial properties and the unchecked increase in the unemployment rate are harbingers of potential serious problems in this particular market. This is a logical prediction because the end result of this kind of situation are problems for the property owners in making the monthly installments. And if this is true, it is logical to conclude that they would not also be capable of making the balloon payment that is required as the final payment for the mortgage. Just like in the residential real estate market, this could ignite a series of defaults and foreclosures that could further bring down the economy. It is here where commercial mortgage modification could provide assistance to the ailing property owners, the banks and the economy as a whole.

A possible way for this to work is that the bank may permit a permanent or temporary decrease in the rate as a way to help the borrower avoid foreclosure. Even bringing down the rate by one percent could reduce the debt burden by thousands of dollars each month. This kind of commercial mortgage modification could achieve much in providing the property owner some room to breathe while waiting for the economy to recover and for the properties to get more tenants again.

Another commercial mortgage modification strategy is to extend the maturity of length of the loan. This could push back the due date of the balloon payment or even let the borrower completely avoid it if a source for refinancing is located. The balloon payments are often present because the monthly payments for commercial loans are often based for a longer term than the actual loan term. For example, the calculations for the monthly installments may be based for a term of 25 years but the actual term of the mortgage is only 10 years. Therefore, a large amount has to be paid just before the mortgage expires. During better times, the commercial property borrower will either find a buyer for the property or search a bank to provide another loan to in order to come up with the balloon payment. But with the economic crisis where there are less available funds and property values have dropped substantially, looking for a source of funding could be tough. The same could be true when looking for possible buyers of the property.

A commercial mortgage modification may also permit the borrower to hold back on the payments for a certain period of time. To illustrate, the borrower may be allowed by the bank to skip three to six months in the payments without incurring penalty charges. This would permit the property owner to look for more tenants and find ways to come up with the payments.

Meanwhile, commercial mortgage modification is also one of the workouts that are being touted by bank regulators to help the banks remain viable. This is expected to minimize the number of foreclosures that could further damage the economy.

About the Author/Author Bio

Ready to learn more? Please visit us at our commercial loan modification site. You should also check out our article on Commercial Short Sales.

Article Source: http://www.et.articlesphere.com/Article/How-Commercial-Mortgage-Modification-May-Contribute-To-The-Economy/191977

Article Tags: commercial loan audit, commercial loan modification, commercial loan review, commercial loan workup, commercial modification

Article Submitted: 2009-12-16 | This Article has been viewed 145 times.

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