July 8, 2016

Banks and the CRE Market


Banks and thrifts have been the driving force behind commercial loan volume growth over Q1 2016.

Banks and thrifts have reported significant dollar increases in commercial and multifamily debt outstanding, according to the Mortgage Bankers Association. Banks boasted a 2.5 percent hike over the first quarter from 2015's fourth quarter, compared to the 1.2 percent overall increase.

The GSEs also reported a comparable increase over the same timespan, though the dollar volume was smaller.

As of the end of Q1 2016, the total commercial and multifamily debt outstanding increased $35.3 billion to $2.86 trillion from Q4 2015. Multifamily debt accounts for over a third of that amount at $1.07 trillion.

While life insurance providers reported a 1.3 percent increase in commercial/multifamily mortgage debt outstanding from the previous quarter, other types of insurance companies boasted the biggest percentage gain - up 8.2 percent to $13.3 billion. However, these other insurers outside of life companies don't fare as well when it comes to lenders' proportion of commercial/multifamily outstanding mortgage debt.

In particular, it was the CMBS that ranked at the bottom, despite this group holding the second biggest proportion of commercial/multifamily debt at 17.6 percent, while banks and thrifts holdings sit at 38.6 percent. This collective class's share dropped 2.3 percent and almost $11.7 billion in Q1 2016 compared to the fourth quarter of 2015.


Banks are coming under closer federal scrutiny as their commercial loan concentrations continue to rise.

Banks May Be Taking the Lead, But Head For Closer Scrutiny

Commercial and multifamily mortgage debt outstanding is growing at a solid pace, being driven predominantly by bank holdings, as well as Fannie Mae- and Freddie Mac-backed multifamily loans.

But along with a hike in CRE loans comes increased regulatory scrutiny. Following another quarter of strong growth, analysts are starting to wonder if more risk is imminent.

In December 2015, federal regulators announced they would be taking a closer look at commercial and multifamily loan concentrations. Over 400 banks had exceeded the FDIC's total recommended CRE lending concentration ratios, and held total assets of $487.73 billion with $175.53 billion in outstanding CRE loan balances.

As a result of such scrutiny, banks are becoming more conservative in their lending criteria. Their efforts seem to be working; commercial/multifamily mortgage delinquency rates have been hovering at lows despite the increase in loan concentration.

CMBS Market Struggling

On the other hand, loans held in commercial mortgage-backed securities has dipped. Since its peak in 2007, these holdings have dropped one-third as CMBS loans are being paid off faster than they are being originated.

With volume decreases hitting the CMBS market, its commercial and multifamily market share continues to plummet.

CMBS delinquency rates have been on the uptick as well into the second quarter of 2016. Overall CMBS loan delinquencies rose by six basis points in May to 2.98 percent from 2.92 percent the month before.

Loan Sale Advisors: Pairing Financial Institutions With Buyers and Sellers of Loan Portfolios

While many big banks are generating excess loan volume, they're also being heavily scrutinized by regulators which can make their lending practices more expensive and cumbersome. By the same token, other smaller financial entities are also struggling.

What both constituencies need is a seasoned loan sale advisor to properly address their balance sheet needs. Loan sale advisors such as Garnet Capital can help put banks and other financial institutions in touch with the ideal partners in the buying and selling of loans.

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