Garnet Capital Advisors Blog

EXCERPT:  According to a recent survey by the Federal Reserve, banks and lenders are claiming to be tightening their lending standards due to the coronavirus pandemic.

CRE loans are facing greater tightening in lending standards among banks and lenders in the first quarter of 2020.

The coronavirus pandemic has had a significant impact on the lending industry, and banks and lenders across the nation are taking steps to protect their balance sheets against potentially weak loan assets.

According to a recent quarterly survey conducted by the Federal Reserve, the current health crisis has prompted lenders to tighten their lending standards on all loan types.

The survey polled senior loan officers on lending practices to gather information on loan activity throughout the first quarter of 2020. The majority of banks polled said that more stringent lending standards were applied in late March as the COVID-19 crisis continued to show signs of worsening.

Tightened Lending Standards Applied to Commercial Real Estate and Construction Loans

Almost half of lenders polled said that lending standards on multifamily property loans were tightened over Q1 2020, and over half said they tightened their lending standards on commercial real estate and construction loans. No lender surveyed claimed to have eased standards on any loan types.

More specifically, 52.4 percent of banks claim to have introduced tighter lending standards for construction and land development CRE loans, while 49.2 percent of banks said they tightened lending standards for multifamily properties.

The first quarter saw a significant reduction in demand for CRE loans, as well as less demand for consumer loans and commercial loans for small businesses. Conversely, demand for closed-end mortgage loans and commercial and industrial loans for larger companies increased over the same period.

The Federal Reserve's latest poll shows that fewer banks claimed to have tightened lending standards for residential mortgage loans.

Lending Standards Not as Tight For Residential Mortgage Loans

While lending standards may have been tightened for CRE and construction loans, a smaller number of banks claimed to have tightened lending standards for mortgage loans. That said, more banks admitted to implementing more stringent lending standards for qualified jumbo home mortgages in comparison to other types of mortgage loan products.

In particular, a mere 1.9 percent of banks said that they tightened lending standards for residential mortgage loans backed by government entities, such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). Meanwhile, 5.4 percent of banks said they had tightened lending standards for mortgages qualified for purchase by government-sponsored entities.

Strengthening Loan Portfolios: A Must For Banks and Lenders

The nation is certainly coming under fire as the COVID-19 pandemic continues to weaken the economy. Given the current circumstances, banks and lenders are urged to take the time to revisit their loan portfolios and pinpoint areas of weakness.

Garnet Capital can help facilitate the sale of risky assets and the acquisition of stronger ones to develop a robust loan portfolio capable of withstanding the tribulations of today's economy and beyond.

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