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Commercial Real Estate Concerns Get Aired At US TARP Hearing

By Judith Burns, Of DOW JONES NEWSWIRES

WASHINGTON -(Dow Jones)- Some lawmakers welcomed news Tuesday that 10 of the nation's largest banks are poised to repay billions of federal assistance but warned that a "ticking time bomb" in commercial real estate could deal a punishing blow to lenders and the economy.

"I am very concerned about the ticking time bomb we face in commercial real estate lending," congressional Joint Economic Committee Chair Carolyn Maloney, D-N.Y. said at a hearing Tuesday. She noted that an estimated $400 billion of commercial real estate loans are coming due this year, with another $300 billion due in 2010.

If commercial real estate developers cannot refinance or pay off that debt, " we could expect to see the default rate on commercial mortgages climb much higher," Maloney warned.

Maloney's comments came at a hearing into the $700 billion Troubled Asset Relief Program approved by Congress to help banks saddled with soured assets linked to risky home mortgage loans. Just before the hearing began, the U.S. Treasury Department announced that 10 recipients of so-called TARP funds will repay a total of $68 billion, which Maloney called "welcome news."

The hearing follows the release of a new Congressional Oversight Panel report on the TARP, which faulted recent "stress tests" of 19 large financial firms by the Treasury Department and the Federal Reserve, saying the economic assumptions probably were too rosy and that the projections only run through 2010.

"We simply are asking for more," Congressional Oversight Panel chair Elizabeth Warren told lawmakers. She recommended that the stress tests be run again, with tougher assumptions, and be continued as long as banks hold troubled assets.

As a case in point, Warren noted that the U.S. unemployment rate projected for 2009 under the stress tests' "worst-case scenario" was 8.9%, but "we're now at 9.4%,"
"This is a real concern, the worst case scenario in 2009 is in fact not the worst case," said Warren, whose panel is monitoring the Treasury's spending of the bailout money.

In addition, the oversight panel called for regulators to issue more information about the stress-test methodology, allowing outside analysts to replicate the tests themselves.
-By Judith Burns, Dow Jones Newswires, 202-862-6692; Judith.Burns@dowjones.com
(Michael Crittenden and Maya Jackson Randall contributed to this article.)