If landlords can’t pay back loans on office buildings, the lenders will suffer. Some banks are trying to avoid that fate.
Hard times are likely ahead for a lot of people. Mind your expenses and plan to save where possible just in case. Apologies for having a doomer outlook; I’m very cynical about capitalism, especially in the USA.
Waitaminit…
If a bank sells a mortgage, there obviously has to be a buyer.
Any buyer who does their due diligence is going to see a mortgage on a commercial office property, and weigh the risks of the borrower defaulting on their mortgage, or the borrower not being able to refinance when the mortgage is due.
So given the current environment for commercial offices, any reasonable buyer is going to offer to buy commercial office mortgages at a discount, maybe even at a significant discount, which likely means a financial loss for the bank anyway.
So what’s the difference if the bank holds on to the mortgage, and if the borrower defaults, then seizing the building, i.e. the real asset, and auctioning it off for whatever it can get?
Wouldn’t the loss on a mortgage default and asset seizure, likely the be about same as the loss as selling to a prospective buyer for the mortgage, a buyer who had properly calculated a discount for the risk into their purchase price?
The bank sells it for less, getting the cash now, and writing it off on taxes. That way if they foreclose on it they don’t lose more.