Real Estate Lending Slowdown Will Have Minimal Impact on Marketplace Lenders

Real Estate Lending

Here’s a great twist. Real estate lending is slowing down according to the Mortgage Bankers Association due to a multitude of reasons, but it is affecting legacy banks more so than marketplace and other non-bank lenders. The traditional banks have more regulations and capital requirements that impede their underwriting criteria and when things slow down they must be more selective to “please” the regulators. The newer more nimble lenders now have an opening to actually increase their market share and continue their rapid growth. Hmmmmm, see what less regulations can accomplish?  An excellent piece by the president of Money360, a marketplace lending platform for commercial real estate loans nationwide.
(Bill Taylor/CEO)

“According to new statistics from the Mortgage Bankers Association, real estate lending is slowing down. Lenders closed $491 billion in mortgage loans in 2016, down 3 percent from the previous year. The decline in the last quarter of 2016 was even more significant, falling 7 percent in comparison with the fourth quarter of 2015.

In commercial real estate, reports show that the decline is even sharper. According to Real Capital Analytics, U.S. commercial property purchases were down 10 percent in 2016 from the previous year, and the trend seems to be continuing into 2017. U.S. investors purchased $50.3 billion in commercial property in January and February of 2017, compared to $80.1 billion during the same timeframe in 2016.

While there is a multitude of potential reasons for this decline, including high property values, increasing interest rates and growing regulatory pressure, real estate lending’s decline is somewhat overstated. While there is a drop off from 2015, 2016 numbers remain strong. It is the third highest year on record for the Mortgage Banks Association, behind only 2007 and 2015.

With $300 billion in loans coming due in the next 18 months, it is unlikely that the slowdown is a sign that the industry is poised for a more significant decline. Historically, interest rates are still unusually low, the stock market bullish and the near-term outlook for the U.S. economy is positive.

Strong outlook for marketplace lending

However, 2016’s minor slowdown does leave room for marketplace and other non-bank lenders, which have fewer regulations imposed on them than banks and other traditional lenders, to fill the demand for commercial real estate loans. Dodd-Frank, Basel III and other regulations are stifling deal flow for banks by making it more difficult to approve new loans or refinance maturing loans. As of December 2016, CMBS originators must retain a 5 percent interest in the transactions they originate. Because of these and other regulations, banks may have difficulty closing transactions, choose to issue smaller deals to reduce their own exposure or pass along increased costs to borrowers…”

Source: NREIONLINE