If banking had an Olympics, creating loan value would be an event. While many lenders and business development officers are good at gathering new business, they are often reactionary when it comes to structure not taking the time to find the best structure for the client. They may provide what the client wants, but not what the client needs.
Tag: Prepayment Penalties
In this era of compressing margins and volatile rates, not having a prepayment provision on your loans is likely costing your bank a material amount of income.
Sometimes here at CenterState, we feel like hamsters - $25mm of loans go on our balance sheet in a month and $20mm runs off. Of course, most all of those loans don’t have prepayment protection so the result may be our own doing. When banks originate a loan without a prepayment penalty or yield maintenance provision they are giving away economic value to the borrower – on average 7.2% of total loan value to be exact. For a $1.5mm loan, that is like giving the borrower a new Tesla P85D complete with “Insane” mode.