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View Diary: Why banks aren't lending. (41 comments)

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  •  wage stagnation (2+ / 0-)
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    yoduuuh do or do not, polar bear

    Banks shouldn't lend to people who can't pay back the loan.

    Now when we talk legal persons, the steps get a bit more complicated than when we're talking natural persons, but the concept is the same.

    This is an interesting story, to say the least. At one point, you refer to this process as foreclosure, then at another point, you reference loans coming due within six months. Which is it? Is the company defaulting on the mortgage, or is the bank not renewing a financing agreement set to expire soon? The former is caused by factors that ultimately lead back to wages. The latter, well, suggests that something else is in play in this particular case.

    So, I wouldn't extrapolate from this incident to national lending trends.

    The bankers said they are refusing to loan to their best and most credit worthy customers.  They are refusing to renew loans to anyone.

    If that's true, then they're making the state-chartered banks in your area absolutely giddy. The best customers, the ones that are credit worthy and profitable; other banks would love to get that business. Of course, more likely, that's just what a banker who's bringing bad news about not renewing a loan would say.

    Of course, there's another option, and that is that the bank is committing some sort of breach of contract. In which case, might be time for the financial consultant and the real estate attorney to have a little consultants' chat and report back to business owner.

    •  Which is it? (4+ / 0-)

      They are doing both.  They are not renewing laons coming due, and they are forcing the hand of those loan holders with longer term notes by threatening foreclosure.  And, as I explained in another response, they can declare almost any commercial loan in default for almost any reason.

      Unfortunately, the state banks are exhibiting an extreme amount of caution.  And who knows what their commercial RE exposure is?

      "other banks would love to get that business."

      Not in these economic times...

      •  caution is good (1+ / 0-)
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        polar bear

        I don't think calling the loan is a breach of contract, but I was offering that possibility since we don't know the terms. If you have a contract that lists reasons why the bank can call a loan, then there's nothing fishy going on when the bank calls the loan. What I particularly don't like is suggesting that reflects some sort of national trend. From a public policy perspective, most people are worried about residential real estate, not commercial real estate. They're worried about their homes being foreclosed. There's vacant commercial real estate everywhere. What was the contingency plan for handling a called loan, particularly in an environment like this when there's widespread downward pressure on real estate prices?

        "other banks would love to get that business."

        Not in these economic times...

        That's my point. There's something going on here in the details of the story. In these economic times banks love profitable companies. Something changed either at the bank, or in the position of the organization. If it's a bank change, you can quite likely find financing for half of a property from another bank. If something else is different, though, then that change is what needs addressing.

        Here's my main issue. The title of this diary isn't 'Help me obtain CRE financing for a valuable small business'. Instead, it's 'Why banks aren't lending'. I don't see the national trend in this particular story. I just see a sucky situation where a small business clearly will be better off finding a new banking partner. And let me emphasize, I do empathize that this is a sucky situation. But this is why banks put recall provisions in contracts; so they can recall the loan at their pleasure. And perhaps the decision that makes the most financial sense is to work with the bank to sell the property and lease space, either from the new property owner or at another location, if refinancing within 90 days appears unrealistic.

        The OCC is being responsible when they encourage banks to carefully evaluate the risk management models they're employing. But if a banker told you explicitly, 'the OCC told us to call this loan', I'd be skeptical of that. In fact, that might even be a pressure point you have with at least getting the bank to give you more time to refinance. Have somebody from the OCC call the bank or tell the bank that you're discussing the matter with the OCC or something like that.

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