State of the Commercial Mortgage Business in the US

State of the Commercial Mortgage Business in the US

The small balance (loans less than $5 million) commercial mortgage market has seen a tremendous amount of volatility in the last 3 years. Of considerable note has been the "death" of the CMBS market (Commercial Mortgage Backed Securities) which accounted for approximately 55% of all funded commercial mortgagesin the US in 2007. In 2008, that market shut down by 98%, which caused considerable chaos and confusion within the market and for all players involved.

2009 the CMBS market did no better, but towards the end of the year, a few transactions (issuances) did occur which gave hope to many industry professions that the market would eventually come back. 2010 year to date, we have seen a slight pickup, but are still down by approximately 95% of the funding peak in 2007.

CMBS loans are primarily for investors with a minimum loan balance of $1,000,000. Non multifamily investors, those that would normally seek CMBS type financing, continue to face considerable challenges as loan options remain scares. This is perhaps the most difficult sub section of the industry as there is no government backing, such as with Fannie Mae. Loan to value requirements have dropped from 80%-75% in 2007 to 60%-50% now, coupled with a national drop in property values of approximately 25%. This combination of declining property value and lowered loan to value standards has cause much havoc. On a positive note, we are now seeing more conventional bank loans for investors becoming available. The appetite from small to mid size banks for investor deals seems to be returning. We believe this trend will continue.

SBA Loans

The Small Business Association (SBA) loans have received tremendous amount media coverage over the last few years due to the various Stimulus programs create by the Obama administration. These loan programs are geared towards small businesses for the purchase or refinance of commercial real estate and to finance other items such as goodwill, working capital, equipment loans, etc.

These loans remain one of the brightest spots in the business, though not without a tremendous amount of change and uncertainty. The SBA acts an issuance company for banks by guaranteeing a portion of the loan amount for banks in case of borrower default. Having the guarantee for banks also has another major benefit. Banks do not have to claim the entire loan balance on their balance sheet only the portion that is not guaranteed has to be reported. This reduces pressure on bank's capital reserve requirements.

The loan guarantee has been set at 75% of the total loan amount on SBA 7a loans for years. With the Stimulus the guarantee has been raised to 90%. This has made banks much more willing to lend.

For borrowers, SBA loan can be relatively expensive. With the Stimulus, the fees have been eliminated, which are approximately 3% of the total loan amount. This has been a great incentive to many borrowers.

However, the handling of the Stimulus package has received a lot of criticism from both borrowers and industry professionals. Various forms of the Stimulus have been rolled out and quickly ran out of money. This has occurred four times now. Many borrowers that were half way through the lending process were denied funding due to this, causing considerable distress. This happened to thousands of borrowers.

The US is far from having the current situation resolved within the commercial mortgage industry. However there are signs of growth, such as a rebound with apartment occupancy levels, and in increased funding with smallcommerciallendersand banks.

POST COMMENT

Start-up your own dog boarding business Running your own scuba diving business Running your own crayfish farming business Start your own public relations business Start your own investment advisor business Operating your own interior design business Running your own home health agency business Start-up your own dental business Start-up your own plastics recycling business Forex Cash Bot makes it easy to work at home Keyword Targeted Traffic – Using SEO to Your Business' Advantage Businesses should pay attention to the international payments they send and receive, because exchange rates vary constantly Big Business, Small Store