There certainly is a glaring difference between the Commercial Real Estate(CRE) loan underwritten for Peter Cooper Village/Stuyvesant Town in New York City, where forward looking pro formas based on non-existent future cash flow took place, and the underwriting of a 20 unit apartment building in our local market, based on a rent stabilized, and rent controlled environment with predictable cash flows, or the commercial office real estate owned by a local doctor group that houses their offices, where they tend to their patients in the community … Yet the media, along with most of the bank regulators place all of these loans in the same bucket.
The public perception is that all CRE is risky, and that banks engaging in CRE lending are therefore risky, is a perception that is more damaging to sustained growth in our economy than the sub-prime mess that started it all.
The FDIC has created “guidance” that was adopted in 2006 and revised in 2008 that is now being looked at as a “bright line in the sand” by most examiners and regulators. No such line has been created for Residential Mortgages, or any sub-type of those loans. Our regulators should take a more reasoned approach at creating additional buckets based on risk, and not cut off the only remaining source of funding left for the small business owner on Main Street. And what happens to the borrower with perfect credit, terrific cash flow, substantial collateral that are approaching the end of their term, and need to refinance? Who will be able to finance their loan? What will that mean to our economy?
The Treasury Secretary talks about how banks should be encouraged to increase lending to help restore growth in our business community. How will local businesses be able to finance their growth, or more importantly how will start up businesses be able to obtain financing to purchase the real estate needed for a restaurant, office, manufacturing facility, etc in this environment.
Prudent underwriting should always prevail, and the banks that get it right should not have to labor under “guidance turned into policy” designed for all banks which range in every size, and in every state, and in every part of the country regardless of their track record…