As handy phrases go, extend-and-pretend is hard to beat. It's ashorthand that is easy to understand and summarizes, whether fairlyor not, the approach that lenders have taken to coping with thehuge volume of distressed assets produced by the recession andfalling real estate values. Whether the phrase is fair or not issubject to debate, says Mark Grinis, partner and global real estatefund leader at Ernst & Young, and a member of the DAI editorialadvisory board. When I asked Grinis if extend-and-pretend hashelped or hurt the recovery, he pointed out that the approach isnot an orthodox, formal policy of lenders but a phrase coined toboth describe, and to some extent deride, the practice of extendingand modifying loans.

"It's really a policy of extend-and-wait-until-the-dust-settles," Grinis says. "This industry is vulnerableto very dramatic cyclical swings, and anyone who has been in thebusiness for the past couple of cycles recognizes that selling atthe absolute bottom of the market, when there is no liquidity, often maximizes write-off s and minimizes recovery."

How you view the practice of extending distressed loans dependsin large part on where you sit. Investors who were hoping to grabloads of assets for pennies on the dollar have been disappointed bythe relatively small percentage of troubled assets that have cometo market. Critics have said that extending loans is just delayingthe inevitable.

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