All is Fair Game

Commercial Real Estate Lending
December 19th, 2015 12:03 PM

WASHINGTON, Dec 18 (Reuters) - The top U.S. banking regulators issued a forceful warning about commercial real estate lending on Friday, saying they will keep close watch on the segment next year as a recent swell in looser loan standards threatens banks' financial health.


The statement from the Federal Reserve's Board of Governors, Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency said banks have been easing underwriting on loans for commercial real estate.


The agencies "also have observed certain risk management practices at some institutions that cause concern, including a greater number of underwriting policy exceptions and insufficient monitoring of market conditions."


The warning comes after a series of federal analyzes found that looser underwriting standards, especially prevalent in commercial real estate (CRE) loans, posed threats to the financial stability of both banks and the United States.


In Friday's statement, the regulators said that next year they will "continue to pay special attention to potential risks associated with CRE lending." They will focus on banks that have recently experienced substantial growth in commercial real estate lending, that plan to increase the lending, or operate in growing or risky markets.


The agencies could ask lenders to strengthen underwriting standards or raise additional capital, according to the statement. They could also ask for plans to better monitor the loans, which can be made for shopping centers, office spaces, apartment buildings or condominium projects.


The statement outlined a series of steps that the banks could take to lower their risks, such as analyzing a borrower's ability to service all of its debts during periods of rising interest rates.


(Reporting by Lisa Lambert; Editing by Matthew Lewis)

Posted in:Banking and tagged: Commercial Loans
Posted by Greg Shelley Phd on December 19th, 2015 12:03 PMPost a Comment

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