People avail of investment property loans to invest in commercial buildings, either to generate cash by renting it out as office, living, or retail space, or use it for their own business intents. This growth in the commercial lending industry has grabbed the attention of the Feds.
The Feds and other regulators want to ere in the side of caution because the housing market has declined and the commercial sector may follow. Regulators fear that a decrease in the commercial market will result in a lending and banking crisis because lending institutions and banks providing investment and commercial property loans are growing in number.
To lessen and control probable losses, the Feds have released numerous proposals and guidelines, in case the scenario happens. How the lenders manage investment and commercial property loans are what alarms the Feds. Banks who handle them correctly and whose ratio of commercialinvestment property loans to capital is below a standard degree won’t be shaken by the current guidelines. Financial institutions and banks with higher concentrations of investment and commercial property loans to capital will be advised to change underwriting practices, handle loans better, and increase capital, and will be scrutinized by the Feds. Many are concerned that the Feds are overstepping their limits in an effort to control lending. The Feds assure that this isn’t the case. They are merely issuing guidelines and the violation of the guidelines means that bank will be under scrutiny of the Feds and tightly watched. John Dugan, the Comptroller of the Currency states, We aren’t demanding that you to cut back on commercial real estate loans. You may have concentrations in commercial real estate loans, if you can manage the growing risk with capital and appropriate risk management.
There has been many conflicts between bankslenders and regulators. Most lenders and banks believe that the Feds shouldn’t command where, who, and how to do loans. The Feds think that they have seen standards slip in underwriting and risk management among institutions with heightened concentrations of commercial and investment property loans. Commercial lenders and bankers feel that an overall approach is not a very efficient option to handle it and the matter ought to be managed in a per bank way. The debate continues. Distress about investment property loans and commercial lending is growing as the housing market is nosediving.