While no one can predict with absolute certainty how the market will respond on a day to day basis, there are certain indicators that allow experts to make projections and determinations about the general direction of the market. This is also true when analyzing the loosen or tightening of the commercial mortgage market. Here are some key trends that are currently affecting the availability and structure of loans.
Lending from alternative sources – Recently, banks and other institutions that specialize in commercial mortgage backed securities have slowed down in granting mortgages. One of the reasons that this is happening is that these institutions are preparing for further regulation that kicks in this year from the Dodd-Frank Act. At the end of 2017, it will be required for lenders to retain at least 5% of any new loan. What this means for potential borrowers is that it is going to be more difficult to obtain funding from traditional sources, so turning to lenders that are not associated with a bank will definitely be on the rise.
Interest Rates – According to the Department of the Treasury, the Federal Reserve bumped the interest rates up at the beginning of 2017. While the economic trajectory of the market is most definitely in an upward swing, even the smallest interest rate increase affects mortgages and lending simply due to the size of loans. With an interest rate increase, expect to see fewer loans, which will constrict growth, but can also be a good indicator for overall economic growth and strength. Higher interest rates tend to reward both borrowers and lenders for reducing risk.
Government Involvement – It is no secret that President Trump is vehemently opposed to regulations in the financial market, so it should come as no surprise that one key item on his agenda is to roll back the Dodd-Frank Act. The loosening of regulation is a double-edged sword, as it was with the mortgage crisis in 2007-2008. While lending becomes easier with less regulation, there is also the potential for a very high-risk environment that could easily end in another crisis. So, if the Trump administration takes aim at aspects of Dodd-Frank that make it harder for banks to lend, it will actually become easier to obtain a commercial mortgage.
Practically speaking, you will still be able to apply for a loan, regardless of the trends or pending regulations. However, these trends could affect not only who carries your loan but also how difficult it is to obtain a commercial mortgage. There is also a good chance that, if the Federal Reserve continues to bump the interest rates up, that you could end up paying quite a bit more over the lifetime of your mortgage than in previous months and years.
Dennis Dahlberg Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.