Mr. Rowe: I think that from a crisis-peak perspective, I think we're probably past the peak but there is going to be a long tail, I would suspect, especially for a lot of the smaller banks throughout the country that do have heavier exposure to commercial real estate and clearly still have a good debt of construction and development loans still on their books. I think we are certainly in a better position from a capital perspective; we've seen a lot of capital raised and valuations have improved versus a year ago. But credit costs are still to be had, and I think that the elevated problem loan levels will linger.
TWST: Mr. Mitchell, what's your take? Are we close to getting out of the morass that we've been in?
Mr. Mitchell: I have very little disagreement on this one. I think that if you look at the underpinnings for commercial real estate, you can see that rents are going down, occupancies are going down and valuations - although they're holding up reasonably well - valuations are dependent in part on very low levels of long-term interest rates. So I think there's a lot of risk in the commercial real estate sector that has not really popped to the surface. And I think we have to remember that residential real estate is made up of mostly very small loans, and it's very difficult for banks or servicers simply to figure out how to stretch out loans and make accommodations that can successfully restructure residential mortgages. In the commercial arena, however, it is standard practice to stretch out loans, alter terms and conditions, and hope to put off to another day what currently looks like a very sad situation around the country in hopes that eventually the markets will turn up.
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