In just a couple of months, the current economic expansion will be the longest in US history. Since the mid-19th century, the country has experienced 33 business cycles in all, with the average economic expansion lasting a little over three years, and the average recession lasting just under 1.5 years. The current expansion will, without a doubt, outlive the previous longest period of economic growth that occurred from 1991 to 2001. However, no one has
Many banks today are satisfied 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 and below 75% LTV – with many loan-specific factors that may skew these acceptable levels either way. For competitive reasons, we see some banks who are dipping to 1.10X DSCR, and some deals are approved at 85% or even higher LTVs. However, in today’s business c
We believe that CECL will inadvertently force some community banks to make suboptimal lending decisions and accelerate community bank consolidation, while, at the same time, allow others to differentiate their business models. In this article, we consider some of the secondary effects of CECL on community bank CRE lending decisions and specifically the average life of newly originated loans.
We are in agreement with the ICBA that FASB’s proposed current expected credit loss (CECL) model would place tremendous costs and regulatory burdens on community banks. We also agree that CECL, as proposed, will increase reserves and negatively impact many community banks’ ability to lend and support economic growth through lending. However, it does not appear that the current proposal will be modified for banks under $10B in assets. We believe CECL will fundamentally change community banking, but some of those