Money & Finance › Commercial real estate lending › Loan modifications and forbearance agreements
'Extend and pretend': rolling loans over instead of foreclosing
· Concept
Experts disagreeEconomists or investors genuinely disagree.
Slang for lenders extending loans on buildings now worth less than the debt, hoping values recover, instead of foreclosing and booking a loss.
See it on the Money & Finance map →How it works
A loan matures, but the building, its value down, cannot refinance. Rather than foreclose into a weak market, the lender extends one to three years, often in exchange for a paydown, a cash sweep or a higher rate. Bank regulators' 2009 workout guidance, updated in June 2023, says banks will not be criticized for prudent extensions to viable borrowers. Supporters say patience paid off after 2009–12; critics say it hides losses, keeps 'zombie' buildings starved of capital and delays repricing.
Why it matters
It explains why the maturity wall has produced fewer foreclosures than feared, and why losses may arrive later rather than not at all.
Think of it like
Like renewing a struggling tenant at the old rent rather than facing a vacant suite: it buys time, not a cure.
Facts, rules and data
MBA maturity data showing loans pushed into later years, the 2023 interagency policy statement on CRE loan workouts, Fed and FDIC reports, and Trepp data on CMBS modifications.
Debates and risks
Whether extensions reduce losses by waiting out the cycle or merely postpone them is the core debate; the answer depends on rates and office values.
Connections (3)
▸The CRE maturity wall and maturity defaults has been partly pushed back through 'Extend and pretend': rolling loans over instead of foreclosingMainstream view
The connection
Close to $1 trillion of US commercial mortgages came due in each of 2024 and 2025, many on buildings worth less than their loans. Banks and servicers extended a large share, often by 12–36 months, rather than foreclose, so maturities kept rolling into later years and the wall moved rather than broke.
When and why
US banks, life companies and CMBS trusts, 2023–26, especially on office loans.
How solid is the link?
MBA maturity surveys showing loans extended from earlier years, and Trepp and Federal Reserve data on modifications.
Debates and risks
Whether extended loans will refinance as rates ease or end in a later wave of defaults is the key open question.
▸'Extend and pretend': rolling loans over instead of foreclosing echoes the zombie lending of Japan's bubble and 'lost decades' (1990–)Mainstream view
The connection
In the 1990s, Japanese banks kept rolling over loans to insolvent companies to avoid booking losses. These 'zombie' firms stayed alive, undercut prices and crowded out healthier rivals, and the banks' bad loans lingered for a decade. Critics see the same risk when lenders extend loans on buildings that cannot recover.
When and why
Japan, 1990s to early 2000s; studied by Ricardo Caballero, Takeo Hoshi and Anil Kashyap.
How solid is the link?
Caballero, Hoshi and Kashyap, 'Zombie Lending and Depressed Restructuring in Japan', American Economic Review (2008).
Debates and risks
Whether US property-loan extensions resemble Japan's zombie lending or are short bridges that end once rates fall is debated.
▸Interagency CRE loan workout policy statement (2009, updated 2023) is criticized for enabling 'Extend and pretend': rolling loans over instead of foreclosingExperts disagree
The connection
Because a bank need not call a loan bad just because value fell below the balance, it can extend a struggling loan and hope values recover. Critics say this hides losses and keeps weak buildings alive; supporters say it avoids fire sales, and many 2009-era extensions were eventually repaid.
When and why
First argued over in 2009–2012; revived from 2023 as banks extended maturing office loans rather than foreclose.
How solid is the link?
A 2024 New York Fed staff study found weakly capitalized banks extended maturing CRE loans more often, delaying losses; whether the policy caused this is harder to prove.
Debates and risks
Whether today's extensions buy time for real recovery or only postpone losses on office buildings that will not regain their value.