‘The Worst is Yet to Come’

Business owners should start stocking up on beans and potatoes, because apparently the worst of the housing crisis hasn’t even hit yet.

“The worst is to come. .. typically, there’s a lag between when the economy softens and when defaults actually occur… Like all firms that hold these kind of mortgages, we’ll have some issues,”said Steven Kandarian, chief investment officer at Metlife Inc.

Kandarian says that once the current economic crisis ends, commercial mortgage delinquencies will still rise for two to three years.

Mortgages of U.S. banks, for example, are expected to rise in default rate by up to 4.1% due to lack of refinancing sources and rent issues from the depression. This increase would be the highest default rate for commercial mortgages in seventeen years, resulting in a lapse totaling $44.3 billion.

Of his own company, Kandarian says delinquencies will be small.

Given that rates are already at a fifteen-year high, if these projections do prove to be true, the worst is indeed yet to come for commercial property owners. And as these are default rates rather than delinquencies–where payments are behind three months rather than one–overall companies in trouble with delinquent payments aren’t even factored in.

Commercial loan service providers are stepping in to help, seeking loan extensions for maturing loans to keep businesses occupying their offices–and not defaulting on their loans.

Their requests are not falling on deaf ears. The Treasury is considering creating new debt-restructuring rules to help these businesses, which would help both those who are struggling as well as those who are delinquent on making payments.