Congressional Oversight Panel see $200 to $300 billion in commercial loan losses

According to a report by the Congressional Oversight Panel, a watchdog group for a $700 billion bank-bailout package, about $1.4 trillion in commercial real-estate loans will reach the end of their terms between 2010 and 2014, of which nearly half are now under water (a.k.a we owe more than the investment property is worth).

The report added that losses from commercial loans could range as high as $200 billion to $300 billion.

As a result, it said, banks that suffer from the losses or are discouraged by the economic future could become even more reluctant to lend, which could reduce access to credit for more businesses and families, accelerating a negative economic cycle.

"The Congressional Oversight Panel is deeply concerned that commercial loan losses could jeopardize the stability of many banks, particularly the nation's midsize and smaller banks, and that as the damage spreads beyond individual banks, that it will contribute to prolonged weakness throughout the economy," said the report, which was approved unanimously by the five-member COP.

The oversight panel also urged bank regulators to take a more thorough look at which banks they decide to unwind.

"The COP is clear that government cannot and should not keep every bank afloat. But neither should it turn a blind eye to the dangers of unnecessary bank failures and their impact on communities," the report said.

The COP members said that not all banks should be treated the same way when it comes to recognizing losses. The panel contends that banks with weak portfolios across the board should be forced to recognize all losses.

Jim Cramer 11/17/09: “The case for true commercial real estate catastrophe, I think is totally bogus. If the industry were so near the precipice, then retail should have produced more failures than just Linen & Things and Circuit City, especially given the 10.2% unemployment rate and tight credit markets. There’d be more store space vacancies, too”.

Jim Cramer’s Blog 12/29/09: The biggest canard for 2010 will be the “collapse in commercial real estate”. “There will be no collapse. In fact we will look back at 2009 and recognize it as the year the industry consolidated and the strong got stronger and will be ready to pick off any properties of the weak”.