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US property loans may fail

US banks face a fresh crisis as a wave of commercial property loans threatens to go sour.

The US Congressional Oversight Panel (COP), which monitors government spending under the $700bn (£450bn) bailout programme, has warned that $1.4 trillion of loans covering commercial premises such as offices, shops and factories will mature between 2011 and 2014.

A sharp drop in property values has left nearly half the loans in negative equity.

Millions of property owners are likely to be unable to refinance their borrowings, leading to a wave of defaults which could derail the country’s fledgling economic recovery.

The COP warned that the likely surge in commercial mortgage defaults “would trigger economic damage that could touch the lives of nearly every American”.

The panel found that 2,988 small lenders, of America’s 8,100 banks, have risky exposure to commercial property loans.

“Are we arguing that this is a serious problem that we need to get in front of? The answer is yes,” said Elizabeth Warren, chairman of the oversight panel. “It’s like throwing a handful of sand into the economic recovery.