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If Congress and banking-industry regulators can get on the same page, two sustainable solutions are available immediately.
The first solution, which is already receiving some traction, is to develop a slightly less dogmatic approach to real estate credit impairment, especially for viable borrowers. It seems imprudent to require massive write-downs because of decreased property value when it is apparent that the borrower is viable and committed and that the property will likely regain some level of its pre-recession value when the economy levels.
Without this type of action, banks will continue to focus solely on restructuring their balance sheets and meeting more-stringent capital requirements rather than on funding job-generating projects that will help stabilize real estate values.
This stabilization, along with banks' willingness and ability to finance new projects, is the lifeblood for mortgage brokers. When banks aren't lending, real estate is not sold, and mortgage brokers are rendered inactive.
The second option involves banks that were forced to accept T.A.R.P. funds. Allowing these banks' repayments to fund the FDIC-insurance-fund shortfall can reduce the burden on the viable banks that we are trying to stabilize. If Congress reallocated $50 billion to $100 billion of repaid T.A.R.P. money to restore the FDIC-insurance fund, the banking industry likely would be relieved of one of its most-onerous capital burdens immediately. This money can be recouped from the banks at a later date — when banks are back on sure footing — from higher insurance premiums.
A sound insurance fund that is not burdening banks with capital-depleting contributions can help get bankers back in the business of banking and not in the business of restructuring. Although this seems to be a macro issue, it has a real Main Street impact. Reducing capital burdens will lighten the load on banks, allow them to start lending again, and involve them in the commerce that the real estate and mortgage industries support.
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Commercial banks' viability directly affects mortgage brokers' livelihoods. Brokers must therefore participate in the lending activities of their marketplace on all levels and urge their congressional delegation to support measures that will restart lending.
For banks to start lending again and for the commercial real estate industry to move forward, action is needed now to get Congress and the various regulatory bodies on the same page.
G. Geoffrey Longstaff is chairman of Mercantile Capital Corp., an Altamonte Springs, Fla., company that ranks as one of the largest providers of U.S. Small Business Administration (SBA) 504 loans in the Southeast. A banker for more than 30 years and former president of four national banks, Longstaff earned his master's degree in business administration from Rollins College and teaches banking at Louisiana State University. Reach Longstaff at (866) 622-4504.
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