Commercial Mortgages – Three Reasons Why Big Banks Are Not Making Commercial Mortgages
It's no secret that many big banks aren't closing commercial mortgage loans right now. If you are presently in the market for a commercial mortgage loan, then you have likely experienced first-hand the difficulty of securing financing for your commercial real estate property.
But what might now be immediately clear to you is why these big banks are so reluctant to generate commercial mortgage loans.
Commercial banks have all-time-high liquidity reserves, and excellent capital positions. Which means that they are hoarding cash, instead of lending it to small business and commercial property owners in the form of a commercial mortgage or other business loan.
Why are they hoarding this cash, instead of making commercial mortgages or other business loans?
There may be a number of reasons of varying legitimacy, but here are the three standard excuses:
1. Increasing Regulation and Oversight. President Obama likes to pose for the cameras while insisting that Banks lend money to businesses.
And by all rights they SHOULD be lending money to businesses. They should be handing out commercial mortgages like candy. That's what this nation and its struggling economy needs.
But instead, these sit on top of piles of hoarded cash. And they say that its because Obama's cronies (i.e. the Federal Regulators) are making it difficult to lend.
There is increasing regulations, restrictions and other red tape related to Banking, especially lending. And Big Brother is always looking over their shoulder, questioning their every move.
If Obama really wants the banks to make more commercial mortgages and other commercial loans, he needs to get the Regulators off the back of the banks.
2. Capital Levels. Banks are required by regulation to keep a certain level of capital on their balance sheets. Ever since the recent near financial collapse, Wall Street wants to see capital levels much higher than required levels. And bank stocks that don't have incredibly solid capital levels have their stock prices punished. So they sit on their capital instead of lending it.
3. State Of The General Economy. Many economists, analysts, and bankers believe that the economy isn't really improving as much as the current administration wants you to believe.
So they are hesitant to issue commercial mortgages, even the popular SBA 504 loan program, for any but the strongest borrowers. Their qualification standards for loans is borderline ridiculous in many cases, making it difficult for the average small business owner or property owner to secure needed financing.
So there are three reasons why many banks aren't lending right now. That's the bad news.