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Recent Federal Improvements in Commercial Lending |
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The commercial lending market has grown and it has captured the attention of the Feds. People get investment property loans for one of two intents. It could be that the investment property loan is to buy a commercial building and rent out as retail, office, or living space, or utilize the property as an investment by bringing in cash flow. It may also be utilized to invest in commercial property for the borrower's business. |
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| Author: Aidan Kellsey |
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The Feds and other regulators want to be careful because the housing market has declined and the commercial sector is more than likely to follow. Banks and financial institutions who provide commercial and investment property loans have increased in volume and regulators fear that a decrease in the commercial market will result in a banking and lending catastrophe.
The Feds have released many guidelines and proposals this year that are designed for controlling and minimizing any probable losses if the given scenario were to play out. How the lenders handle investment and commercial property loans are the Feds are concerned of. Banks that manage them well and whose ratio of commercial/investment property loans to capital is below a certain level won't be affected by the recent guidelines. Financial institutions and banks with many concentrations of investment and commercial property loans to capital will be made to improvise underwriting processes, manage their loans better, and heighten capital, and will be under investigation by the Feds. Many are thinking that the Feds are going over their bounds in attempting to take the reins over lending.
The Feds have told everybody that they are not setting any caps on commercial lending or issuing of investment property loans. They are only issuing guidelines and the disregard for the guidelines indicates that that bank will be scrutinized by the Feds and monitored closely. Says Comptroller of the Currency, John Dugan, "We aren't telling you to cut back on commercial real estate loans. You may have concentrations in commercial real estate loans, if you can meet the increased risk with capital and appropriate risk management."
Regulators and lenders/banks have been arguing about this issue. Many on the lending side insist that the Feds' place isn't to tell banks on how, where, and who to lend money to. The Feds, on their part, know that standards in risk management and underwriting are not met within banks and lending institutions with above average concentrations of investment and commercial property loans. Commercial lenders and bankers feel that an overall approach is not a very efficient method to address it and the issue ought to be addressed in a different way. The argument still goes on. Distress about investment property loans and commercial lending is growing as the housing market is plummeting.
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