While rallies in oil and metals—from aluminum to nickel—faltered during the week, big gains have spurred increased speculation that inflation will pick up. Speculation over inflation has caused the 10-year Treasury yield to increase from 2.83% at the start of the week to 2.91%; the first time the 10-year yield has surpassed 2.90% since February. Investors are now nervous, wondering what happens if crude takes off and wages go higher, housing costs escalate, etc., and what will that mean for the overall economy? Continue reading “Big Gains Cause Concern”→
During the fourth quarter of 2013, commercial and multifamily mortgage originations were strong, boosting mortgage debt outstanding to a new all-time high.
In fact, the fourth quarter marked the highest volume of commercial and multifamily mortgage originations since 2007, with all investor groups increasing their activity, according to the Mortgage Bankers Association’s just-released 2013 Data Book.
The level of commercial/multifamily mortgage debt outstanding reached $41.2 billion, or 1.7%, over the previous quarter.
Originations for commercial bank portfolios increased by 54% from last year’s fourth quarter. There was a 40% increase for life insurance companies, a 15% increase for CMBS and a 43% decrease in dollar volume of loans originated for the two big Government Sponsored Enterprises (Fannie Mae and Freddie Mac) loans.
Multifamily mortgage debt outstanding separate from CRE lending also rose to $895 billion, an increase of $11.5 billion, or 1.3%, from the third quarter and $36.6 billion, or 4.3%, from the fourth quarter of 2012.
Rising property incomes and values continue to boost the performance of commercial and multifamily mortgage loans, the MBA noted.
Commercial and multifamily mortgages performed relatively well during the downturn, and for most investor groups, delinquency rates are now back in the lower end of their historical range.
Loan Maturities Hit Nadir, but Expected to Increase Dramatically
Although 2014 will mark the fourth straight year of declining commercial/multifamily mortgage maturities, volumes are expected to spike – by 72% in 2015 and an additional 34% in 2016, as 10-year loans made in 2005, 2006 and 2007 begin to come due.
The loan maturities vary significantly by investor group. Just 3% ($12.7 billion) of the outstanding balance of multifamily and health care mortgages held or guaranteed by Fannie Mae, Freddie Mac, FHA and Ginnie Mae will mature in 2014.
Life insurance companies will see 5% ($18 billion) of their outstanding mortgage balances mature in 2014. Among loans held in CMBS, 7% ($41.8 billion) will come due in 2014. About 15% ($19.2 billion) of commercial mortgages held by credit companies and other investors will mature in 2014.
Wells Fargo was the top commercial/multifamily mortgage originator in 2013, according to MBA. Other top originators include J.P. Morgan Chase, Bank of America Merrill Lynch, Eastdil Secured, KeyBank, PNC Real Estate, HFF LP, Meridian Capital Group, CBRE Capital Markets and Prudential Mortgage Capital Co.
When JPMorgan Chase released its fourth quarter earnings for 2013, it announced that it had provided $19 billion of credit to U.S. small businesses. The figure sounds impressive, but it pales in comparison with the $589 billion of credit that it provided to big corporations.
This should not surprise anyone. The country’s biggest banks ($10 billion+ in assets) actually prefer to provide capital to “small businesses” that average $10 million in revenue or more. While, it is encouraging that the spigot has opened and big bank loan approval rates for small businesses reached 17.6 percent, according to the December 2013 Biz2Credit Small Business Lending Index, many of them are primarily interested in lending to large “small businesses.” (Yes, that is an oxymoron.)
For many of the big banks, small loans are paper intensive and thus cost more to process. This is a reason why they prefer to offer non-SBA loans, which typically require more forms and documentation and, as a result, take longer to process.
Small banks, which typically do not have the same type of brand recognition, cannot afford to be as choosy. Often, they are a secondary choice as consumers tend to go to the names they know first. Further, because of the amount of advertising that big banks have invested in advertising to promote their small business loan-making, entrepreneurs are going to the bigger players.
Unfortunately, although big bank lending approval rates are currently at post-recession highs, they do not approach the percentage of loan applications granted by small banks (almost 50 percent). Alternative lenders, comprised of microlenders, cash advance companies, are approving more than two-thirds of their requests.
Here Is How Things Can Change:
1) As they continue to be thwarted by big banks, borrowers will continue to comparison shop and seek alternatives to the big banks. Many will use the Internet to find the best deals. Small business owners will secure capital from community banks, alternative lenders, and increasingly, institutional investors that are hungry to make deals.
2) Big banks can improve and upgrade technology. It is still astounding that many of the biggest financial institutions in the country do not allow for online loan applications or eSignatures. What makes this so perplexing is the fact that the large, name brand banks have more vast resources to invest in upgrades.
One can look at the mercurial rise of alternative lenders as proof that when there is a void in the marketplace, the hole is quickly filled. Accounts receivable and cash advance lenders used their technological advantage and made capital more readily accessible. In many cases, speed is often more important to borrowers than low interest rates.
For instance, if you need working capital to make payroll, you cannot wait three months for an SBA loan. Employees want to be paid in a timely fashion and likely won’t wait around for a long period of time without payment.
A number of the large banks, such as TD Bank, Union Bank and others, are investing in upgrades and becoming more active in small business lending. Look for others to follow suit in 2014.
Source: Smallbiztrends Jan 26, 2014 by Rohit Arora