CRE Credit Risk – What You Need To Know Now

The current banking crisis has put a magnifying lens on all non-Too-Big-Too-Fail banks. While the market focuses on deposits and liquidity, media pundits and analysts are waiting for credit problems to appear. Of all the credit risks within banks, one of the largest is in commercial real estate exposure. When CRE credit risk arises, it…

Read More about CRE Credit Risk – What You Need To Know Now

The Problem With DSCR and LTV in Lending

Many community banks today are willing to underwrite real estate secured loans on just two metrics: debt-service-coverage ratio (DSCR) and loan-to-appraised value (LTV). Banks typically approve credits above 1.20x DSCR and below 75% LTV – with many loan-specific factors that may skew these acceptable levels. For competitive reasons, we see banks dipping to 1.10X DSCR,…

Read More about The Problem With DSCR and LTV in Lending

The Data on Better Credit Diversification

Most banks are concerned with their credit portfolio. As credit risk increases with rising rates, the following question arises – is it better to diversify by geography, property type, or business type? Do you focus your marketing dollars and pricing on particular counties, commuter zones, types of commercial real estate loans, or specific C&I industries?…

Read More about The Data on Better Credit Diversification

Managing Loan to Value with Rising Rates

If your bank is like most of its peers, your credit policy permits loan to value (LTV) ratios somewhere between 65% and 85% depending on the category, business cycle, and other forms of support.  In today’s competitive lending market, many banks are pushing boundaries, and loan to values are creeping higher.  We argue that banks…

Read More about Managing Loan to Value with Rising Rates

Use This Trick To Better Diversify Your Loan Portfolio

You can slice and dice your credit portfolio all you want, but if you are not paying attention to cross-correlations, your efforts could be sub-optimal. For example, many banks separate their multifamily exposure away from their single-family exposure. In some markets, these two subsectors are almost 80% correlated. A drop in housing prices usually occurs…

Read More about Use This Trick To Better Diversify Your Loan Portfolio