Federal officials are struggling to manage an impending glut of commercial real-estate foreclosures that could quickly flip the recovering economy into another tailspin, the Wall Street Journal reported Monday. Regulators at the Treasury and the Federal Reserve are focusing on $700 billion in commercial mortgage-backed securities whose underlying loans are at risk for massive defaults. Delinquency levels on CMBS have already reached 3.14 percent — fully six times what they were last July, according to the credit ratings agency Realpoint LLC. Worse still, even borrowers on commercial loans who can afford their interest and principal are finding it difficult to refinance or extend their credit as property values fall and oversight on the refinances increases. It’s a phenomenon that could trigger more losses in CMBS and the major

investors — banks, pensions, hedge funds — that buy them, the Journal said. One problem regulators are mulling is how to permit loan servicers to contact lenders earlier in the process to discuss ideas for avoiding foreclosures and defaults. Developers in financial trouble have complained that they currently have no easy avenue of communications with the holders of their CMBS to review their options. The result, in a Realpoint study commissioned by the Journal, is that 281 CMBS loans worth $6.3 billion couldn’t refinance when they matured this summer, even though 173 of the loans — worth $5.1 billion — had plenty of money on hand. Those pressures, and the threat of more properties hitting the market, could force banks into a new round of write-downs, said Realpoint’s managing director, Frank Innaurato. “What’s going on in the CMBS world is a precursor for what might be seen in banks’ books,” he said. So far, regulators haven’t been able to come up with a comprehensive plan of attack for the commercial property market’s woes, the Journal said. “What landlords need is occupancy and rents to rise, and that means employers have to start hiring and consumers need to shop more,” the Journal said. “So far, there are few signs this is happening.”