According to a recent article in Reuters: sometime in December 2015, U.S. banking regulators put in writing their clear intent to keep a closer watch on underwriting standards in Commercial Real Estate lending.
The statement, issued by The Fedâs Board of Governors, the FDIC and the Office of the Comptroller of the Currency accused lenders of âincreased (underwriting) policy exceptions and insufficient monitoring of market conditions.â
The agenciesâ concern seemed to especially focus on âanalyzing a borrowerâs ability to service all of its debts during a period of rising interest ratesâ
I can tell you this is palpable as Iâve recently spoken to various lenders about different loan scenarios.
âPost close reservesâ and âGlobal Debt Serviceâ (sufficient cash flow across all of an investorâs properties and his consumer debt) are lately receiving increased scrutiny.
The end of lending as we know it? Nah.
The end of âcommon sense underwriting?â Nope. But certainly a sign that higher rates and the attendant strains are coming.
Ironic that after a seven year prescription of âaccommodative policy,â the Fed has misgivings about side effects.