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Pretend or Amend? On Evergreening in CRE

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Abstract

Loan modifications can either amplify or mitigate credit losses depending on the strategy lenders employ. Using detailed supervisory data and a model accounting for competing extension motivations (temporary repayment difficulties, foreclosure costs, and loss recognition costs), I assess why banks extend CRE loans. I find that extensions predominantly address temporary payment frictions, both in normal times and following the Spring 2023 bank stress episode. Contrary to banks "extending-and-pretending" during that episode, banks increased income and principal paydown requirements for extensions, contributing to strong ex-post performance for extended loans.

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  • David P. Glancy, 2026. "Pretend or Amend? On Evergreening in CRE," Finance and Economics Discussion Series 2026-025, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:103198
    DOI: 10.17016/FEDS.2026.025
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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets

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