The Next Mortgage Problem

Get your news from a source that’s not owned and controlled by oligarchs. Sign up for the free Mother Jones Daily.


Could the mortgage on the building that once housed your local Circuit City be Ground Zero for the next financial crisis? A new report (PDF) by Elizabeth Warren‘s Congressional Oversight Panel, which is in charge of monitoring the bank bailouts, says “maybe.”

Warren’s panel warns that a rapidly approaching “wave” of loan losses on commercial real estate (CRE) “could jeopardize the stability of many banks.” That’s because $1.4 trillion in CRE loans need to be refinanced between 2011 and 2014, and according to the panel “nearly half” of them are “underwater”—that is, the mortgage-holders owe more than the underlying property is worth. If the owners can’t refinance, they’ll probably default. That’s bad:

When commercial properties fail, it creates a downward spiral of economic contraction: job losses; deteriorating store fronts, office buildings and apartments; and the failure of the banks serving those communities.

There’s more bad news: it’s community banks, not the Wall Street giants, that are most vulnerable to CRE defaults. And the panel doesn’t rule out the possibility of bailing out some of them:

There are no easy solutions to these problems.  Although it endorses no specific proposals, the Panel identifies a number of possible interventions to contain the problem until the commercial real estate market can return to health. The Panel 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.

It’s a heck of a dilemma. No one wants to see more bailouts—and they’re probably politically impossible, anyway. But if community banks fail, the big banks will become even more powerful and the financial system will become even more vulnerable to catastrophic failure. What a mess.

BEFORE YOU CLICK AWAY!

“Lying.” “Disgusting.” “Scum.” “Slime.” “Corrupt.” “Enemy of the people.” Donald Trump has always made clear what he thinks of journalists. And it’s plain now that his administration intends to do everything it can to stop journalists from reporting things they don’t like—which is most things that are true.

No one gets to tell Mother Jones what to publish or not publish, because no one owns our fiercely independent newsroom. But that also means we need to directly raise the resources it takes to keep our journalism alive. There’s only one way for that to happen, and it’s readers like you stepping up. Please help with a donation today if you can—even a few bucks will make a real difference. A monthly gift would be incredible.

payment methods

BEFORE YOU CLICK AWAY!

“Lying.” “Disgusting.” “Scum.” “Slime.” “Corrupt.” “Enemy of the people.” Donald Trump has always made clear what he thinks of journalists. And it’s plain now that his administration intends to do everything it can to stop journalists from reporting things they don’t like—which is most things that are true.

No one gets to tell Mother Jones what to publish or not publish, because no one owns our fiercely independent newsroom. But that also means we need to directly raise the resources it takes to keep our journalism alive. There’s only one way for that to happen, and it’s readers like you stepping up. Please help with a donation today if you can—even a few bucks will make a real difference. A monthly gift would be incredible.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate