Press Releases

U.S. Representative Rick Larsen (WA-02) praised President Obama’s commitment to create jobs and grow the economy by helping community banks lend to small businesses.

“Small businesses are the number one source of new job growth in our country, but the credit crunch has prevented them from accessing the capital they need to grow and create jobs,” said Rep. Larsen. “I look forward to seeing how President Obama’s proposal will help community banks provide loans to give small businesses access to the tools they need to build their businesses and start hiring again.”

President Obama today proposed a Small Business Lending Fund that will direct $30 billion in Troubled Asset Relief Program (TARP) funds to a new initiative to support small business lending. The program will be targeted at helping community and small banks that lend the most to small businesses.  Larsen has supported other efforts to increase access to credit for small businesses including the Small Business Administration’s (SBA) 504 loans that the American Recovery and Reinvestment Act expanded to help small businesses with debt relief and the 7(a) loans that help startup and early stage firms access capital.

“The Recovery Act and SBA lending programs are stemming the tide of job loss and getting our economy moving again, but more needs to be done. As we move forward, we must create an economic environment for long-term, sustainable growth,” said Rep. Larsen. “In Northwest Washington, the state of the commercial real estate market is threatening our economic recovery. I am working to help community banks cope with billions of dollars in troubled commercial real estate loans so that they can jump start their small business lending.”

Larsen recently signed a letter to Ben Bernanke, Chairman of the Federal Reserve, and Timothy Geithner, Secretary of the US Department of the Treasury, urging them to address the deteriorating conditions in the commercial real estate market that are threatening our economic recovery. The Seattle-Bellevue-Everett metro area had the nation’s highest delinquency rate of construction and land loans in the second quarter of 2009.

“Community banks in our corner of Washington state have been devastated by these troubled real estate loans,” said Rep. Larsen. “We need to address this problem head-on so we can free up much-needed capital for them to loan to small businesses, that will in turn create jobs and launch us on a path towards long-term economic growth.”
 

Text of the letter Larsen signed to Secretary Geithner and Chairman Bernanke follows:

January 29, 2010

The Honorable Timothy F. Geithner
Secretary
U.S. Department of the Treasury
1500 Pennsylvania Avenue, NW, Room 3330
Washington, DC 20220

The Honorable Ben S. Bernanke
Chairman
Board of Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW, Room 2046
Washington, DC 20551

Dear Secretary Geithner and Chairman Bernanke:

As you know, the financial crisis continues to have a dampening effect throughout the credit markets. The commercial real estate (CRE) market, in particular, continues to experience difficult credit accessibility conditions. Moreover, the scarcity of credit in the $6.7 trillion CRE sector poses a dangerous threat to our financial system just as our economy has begun to show signs of recovery.

Earlier this month real estate data provider Trepp announced that the delinquency rate for loans underlying commercial mortgage-backed securities (CMBS) ballooned 500 percent in 2009, surpassing 6 percent in December for the first time. Additionally, the CMBS market has all but shut down over the past year making it more difficult for CRE owners to sell or refinance.

We appreciate the acknowledgement by federal regulators of this situation in October, when the Board of Governors of the Federal Reserve System, along with the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the National Credit Union Administration, and the Office of Thrift Supervision, issued a policy statement advising financial institutions to extend and/or restructure loans backed by income-producing and/or development properties whenever possible in order to minimize losses as well as to stabilize overall asset values in the communities they serve.

While the regulatory guidance is a relatively recent occurrence, we remain concerned by early indications that it may not yet be having the desired impact in stabilizing the CRE market. While some properties are in desperate need of modification due to the economic downturn, we are not convinced these loans are being serviced properly or in an efficient manner. Of even more concern, anecdotal evidence suggests that regulators continue to encourage lenders to write down the value of performing loans, whose payments may well be current and, in some instance, even call the loan. This further exacerbates the crisis by creating defaults in properties that were able to meet their debt servicing.

To ensure the recent CRE loan modification guidance will have a positive and stabilizing effect, and to protect the broader economy from further disruptions, we urge you to establish a clear method for measuring and evaluating its effectiveness. Furthermore, we encourage you to institute metrics to more clearly differentiate performing versus non-performing loans as well as any other steps that provide lending institutions with more confidence in assessing CRE loans. We also call upon you to make clear public statements encouraging lenders to continue to make credit available for performing assets as a means of restoring confidence and long-term value in the CRE market.

In sum, we strongly believe that regulators must take continued steps to mitigate ongoing turmoil in the CRE sector before it becomes a full-fledged crisis, forestalls our economic recovery, and possibly requires additional taxpayer-funded capital injections. Consistent with all applicable law and regulation, thank you for the consideration of our views and your attention to these matters.

###