Rep. Van Taylor (R. Texas) is leading a bipartisan group of lawmakers in pushing for a lending facility to aid borrowers in the commercial-mortgage-backed securities market.
Photo: Bill Clark/Zuma PressMore than 100 members of Congress are calling on the Trump administration and the Federal Reserve to help struggling businesses pause debt payments in a key real-estate financing market.
Many of the hotels, shopping malls and office buildings that borrow money in the roughly $550 billion market for commercial-mortgage-backed securities said they have been unable to negotiate debt reprieves during the coronavirus pandemic. Some are worried they could lose their properties to foreclosure, The Wall Street Journal reported this month.
The troubles stand in contrast to other types of debt such as home mortgages, where borrowers have been able to pause payments for as much as a year as part of the more than $2 trillion stimulus package signed in March.
Treasury Secretary Steven Mnuchin has acknowledged the problem facing commercial-mortgage-backed-securities borrowers.
Photo: Al Drago/Bloomberg NewsThe bipartisan group of representatives, led by Rep. Van Taylor (R., Texas), expects to deliver a letter to Treasury Secretary Steven Mnuchin and Fed Chairman Jerome Powell on Tuesday asking them to set up a lending facility to support these borrowers through the current stretch.
“Without a long-term relief plan in the face of an elongated crisis, CMBS borrowers could face a historic wave of foreclosures starting this fall, impacting local communities and destroying jobs for Americans across the country,” they said in the letter.
Mr. Mnuchin has acknowledged the problem previously. He said during a Senate hearing last month that “this is a technical issue and we may need to come back to Congress to work with you on a technical fix,” though he didn’t offer a specific solution.
Some 7.15% of CMBS loans were 30 or more days delinquent at the end of May, including 19% of hotel loans and 10% of retail loans, according to data from Trepp.
At issue is the rigid structure of this market, which wasn’t designed to provide borrowers with temporary payment relief. Those who need to pause payments must work with “special servicers,” which are hired to negotiate on behalf of the bondholders that own the loans.
Hotel owners who have contacted their special servicers to pause payments say they have been met with silence, long waiting periods and demands for up-front cash. Hotel occupancy fell sharply after the pandemic hit.
“In talking to people across my district, it was very clear that a lot of people in the hospitality space had been really hurt,” Mr. Taylor said in an interview. He also signed a letter to Mr. Mnuchin and Securities and Exchange Commission Chairman Jay Clayton last month about the CMBS issue.
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Hotel owners with CMBS loans have been less able to get payment relief than owners with standard commercial loans from banks, according to the American Hotel and Lodging Association. The Office of the Comptroller of the Currency, a key bank regulator, encouraged banks to offer payment accommodations for all customers during the early days of the pandemic.
Sagar Shah, who owns two hotel properties in Pennsylvania, said he saw the discrepancy firsthand when he tried to defer payments after the hotel industry cratered in March. When he called the local bank that extended the loan on his Best Western Plus in Shillington, he was able to quickly iron out a plan to pause principal payments and keep paying interest.
But when he called his special servicer to ask about deferring debt payments on the mortgage for his Holiday Inn Express in York, he said he wasn’t able to get his questions answered unless he signed a letter that stipulated he pay expenses tied to any negotiations. Fearing he might spend money without ultimately getting enough relief to make it worth it, he chose to keep paying his mortgage out of pocket.
“It’s been a very scary experience for us,” said Mr. Shah.
Write to Ben Eisen at ben.eisen@wsj.com
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