Banks reduce commercial loan level as federal guidelines tighten
Denver Post, Colorado – Banks are balking at extending loans to real estate developers because of federal regulatory pressure on financial institutions to contain the volume of their commercial lending. That’s forcing developers in search of refinancing to default on existing loans and, in turn, give the property to the banks.
The problem stems from federal guidelines issued in 2006 from three bodies — the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Federal Reserve board of governors — that say banks should keep commercial real estate lending to less than 300 percent of their total capital.
Commercial loan losses to be worse than feared in U.S. commercial property market
Editor’s Note: I have noticed many “For Lease” signs around downtown. This can not bode well for the owners of these buildings. According to this article, they have an estimate that the default rate could double this year alone, jumping to 3.8%. I did also notice that many of the banks the analysts are watching cautiously, are smaller regional banks that are of the same size as the ones we keep reading about every Friday when another banks gets seized by the FDIC. This will continue but I do think we will see a bailout package for refinancing these notes coming due.
News (CNN Money):
Banks’ losses on loans to businesses will get much worse than investors expect within the next six months, according to an analyst report Monday that said it’s still too early to buy bank stocks.
Losses on business loans should grow much larger during the next six months than they were during the previous two recessions and could peak in a “kitchen sink” of bad news during the fourth quarter, a team of Friedman, Billings, Ramsey & Co. analysts led by James Abbott wrote in a research note.
Sorenson Group Acquires $701 Million of FDIC Commercial Real Estate Loans
Editor’s Note: As more banks and financial institutions fail, we should see more of this type of activity to get value from these assets. This looks to be how the commercial REO market will play out with banks selling and government agencies facilitating these transactions. What I am looking for is if the government is going to provide funding for these deals through low interest loans?
Sorenson Group Holdings LLC today announced it has acquired a structured portfolio of Federal Deposit Insurance Corporation (FDIC) commercial real estate loans worth $701 million from Diversified Business Strategies of Sandy, Utah. The deal closed Fri., Feb. 20 and includes assets in Arizona, Nevada, New Mexico, Texas and California.