Will Commercial Lending Slow, Due to Recent Negative Economic News?

We have seen steady increases in originations in virtually all fronts of commercial lending in the last year. Is all of this momentum and good news about to disappear due to the struggling national and global economy? For example, SBA Loans are up and are about to run out of its allocated capital before their fiscal year end (September 30th 2011), and conventional investment property loans are up over 107% in 2nd quarter 2011 from the same period a year ago (according to the Mortgage Bankers Association).

In addition, as far as our perspective from doing transactions on the “street,” we’ve not only seen an increase in the number of banks competing on individual loan requests, but also by loosening underwriting standards and by improving loan products (such as our 25 year fixed loan), lowering interest rates, etc all designed to win loans from other banks.

No one knows of course, whether we are about to enter another prolonged stall in national commercial real estate lending/small business lending or not. But the commercial mortgage secondary market holds a lot of the answers to this question. The secondary market provides much of the overall liquidity of the market. Currently the demand for government guaranteed loans such as the SBA 7a loans remain incredible high, with premiums (paid to banks that sell their loans) at some of the highest levels ever seen. This is great news and it gives a lot of confidence that we might just roll through this latest batch of bad news. More details please visit:-skinsmovie.com juananews.com modernwritingdesk.com agriculture-lawyer.com energyleveldiagram.com knowyourworthquotes.com tnifc-ecom.com

However, CMBS loans, which are directly tied to the secondary market, have seen several setbacks this year. For example, there’s been lower than expected fundings, soft demand and investors have demanded higher margins (higher rates of return) to spur their desire to buy this debt. This slowdown in demand translates into low originations. Also troubling is that the default rates with these types of loans continue to increase.

One of the big issues in this sector, and it’s been the same issue since 2007 is that CMBS loans offered higher loan to value financing than commercial bank offered. The problem has been exasperated as property values have declined over the last 4 years. For example, take a $10 million shopping center that received 80% financing in 2006. Now the property is worth $8 million and the max loan to value one can find is usually around 65%…

The CMBS market creates problems for the whole market, even for those banks and borrowers that aren’t involved in it. Bottom line, it reduces the overall liquidity and confidence in the market which in turn slows everything down.

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