Working Paper

Pretend or Amend? On Evergreening in CRE

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.

JEL Classification: E44; G21; R33;

https://doi.org/10.17016/FEDS.2026.025

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2026-05-04

Number: 2026-025