Federal Regulators are preparing workout guidance on commercial real estate loans that encourages banks to refinance these mortgages despite declines in property values.

Federal Deposit Insurance Corp. chairman Sheila Bair told a Senate panel the guidance would be issued soon. "Collateral is a secondary source of payment and should not be the primary determinant to close down lines of credit or deny a refinance because of weakened collateral value," Bair testified.

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