Most bank lenders are finding it difficult to negotiate loan fees – borrowers resist both loan origination fees and loan prepayment fees. However, there is a strong case to be made that loan prepayment fees are more important in increasing loan profitability than loan origination fees.
While we honor the Irish this St. Patrick’s Day, it is important that banker’s don’t leave loan profitability to luck. Given the talk of rising rates, we expect a rash of borrowers that have loans coming due in the next three years to want to refinance and lock in lower rates. Accordingly, our prepayment model for floating rate, adjustable and fixed rate loans expects loan prepayments to increase for community banks over the course of 2015 and 2016. This might be bad luck for some, but it is probabilistic for us.
