The BAN Report: The $11MM Western SBA 504 Portfolio / Homeownership Plummets / FDIC on Third Party Lending / The White House on Community Banks
The BAN Report: The $11MM Western SBA 504 Portfolio / Homeownership Plummets / FDIC on Third Party Lending / The White House on Community Banks-8/11/16
The $11MM Western SBA 504 Portfolio
Clark Street Capital’s Bank Asset Network (“BAN”) proudly presents: “The $11MM Western SBA 504 Portfolio.” This exclusively-offered portfolio is offered for sale by two institutions (“Seller”). Highlights include:
- A total unpaid principal balance of $11,204,589, comprised of 6 loans
- All loans are performing SBA 504 1st mortgages on owner-occupied commercial real estate
- The largest asset, a recently originated SBA 504 1st mortgage on an industrial building, comprises 37% of the portfolio
- Portfolio has a weighted average coupon of 5.22%
- All loans have prepayment penalties
- Collateral types include: Industrial (69%), Hotel (25%) and Office Building (6%)
- Assets are located in CA (73%), TX (25%), and NV (2%)
- All loans will trade for a premium to par and any bids below par will not be entertained
Loan files are scanned and available in a secure deal room for review. Based on the information presented, a buyer should be able to complete the vast majority of their due diligence remotely.
Please read the executive summary for more information on the portfolio. You will be able to execute the confidentiality agreement electronically by clicking on the upper left hand corner of the link to the executive summary.
At 2% from their 2006 peak, home prices have fully recovered from the great recession,but homeownership fell to a 51-year low in the second quarter at 62.9% with many experts believing they will fall even further.
The housing recovery that began in 2012 has lifted the overall market but left behind a broad swath of the middle class, threatening to create a generation of permanent renters and sowing economic anxiety and frustration for millions of Americans.
Home prices rose in 83% of the nation’s 178 major real-estate markets in the second quarter, according to figures released Wednesday by the National Association of Realtors. Overall prices are now just 2% below the peak reached in July 2006, according to S&P CoreLogic Case-Shiller Indices.
But most of the price gains, economists said, stem from a lack of fresh supply rather than a surge of buyers. The pace of new home construction remains at levels typically associated with recessions, while the homeownership rate in the second quarter was at its lowest point since the Census Bureau began tracking quarterly data in 1965 and the share of first-time home purchases remains mired near three-decade lows.
The lopsided recovery has shut out millions of aspiring homeowners who have been forced to rent because of damaged credit, swelling student loans, tough credit standards and a dearth of affordable homes, economists said.
In all, some 200,000 to 300,000 fewer U.S. households are purchasing a new home each year than would during normal market conditions, estimates Ken Rosen, chairman of the Fisher Center of Real Estate and Urban Economics at the University of California at Berkeley.
The rebound in home prices has now made home ownership less affordable for many Americans, even with low interest rates. Further loosening of residential mortgage underwriting standards, which have already been lowered with 97% financing back, can only go so far and can have bad consequences. The WSJ suggests that a lack of supply is the issue, so perhaps banks need to provide more credit for new construction. Credit has been widely available for new multi-family projects, but banks have been far less likely to finance residential for-sale developments, as the cash flows are far less predictable. Alternatively, there just may be more people, especially young people, that do not value the benefits of owning a home and prefer to rent. The bottom line – this trend is long-term in nature and is unlikely to change anytime soon.
FDIC on Third-Party Lending
The FDIC is seeing comment on recent guidance for Third-Party Lending, in which banks provide credit for non-bank lenders or enter into origination partnerships. This has been a hot topic, as non-bank and online lending has exploded, fueled partly by credit from warehouse lines from depository institutions.
As described in the Third-Party Guidance, the key to the effective use of a third party in any capacity, including third-party lending relationships, is for the financial institution’s management to appropriately assess, measure, monitor, and control the risks associated with the relationship. Engaging in a third-party lending arrangement may enable the institution to achieve strategic or profitability goals, but reduces management’s direct control. Therefore the use of third parties to engage in lending activities increases the need for strong risk management and oversight around the entire process, including a comprehensive compliance management system.
To this end, institutions should establish a third-party lending risk management program and policies prior to entering into any significant third-party lending relationships. The program and policies should be commensurate with the significance, complexity, risk profile, transaction volume, and number of third-party lending relationships. Moreover, institutions engaging in third-party lending activities need a process for evaluating and monitoring specific third-party relationships. This process is described in the Third-Party Guidance as comprising of four elements: (1) risk assessment, (2) due diligence in selecting a third party, (3) contract structuring and review, and (4) oversight.
The FDIC identified several areas of risk, including strategic risk, operational risk, transaction risk, pipeline and liquidity risk, model risk, credit risk, compliance risk, consumer compliance risk, and BSA/AML. For the most part, this guidance seems reasonable and prudent, but the concern is whether regulators expect the bank, which is often merely a lender, to effectively police and monitor a non-bank lender not subject to direct federal regulatory oversight.
The White House on Community Banks
The White House Council of Economic Advisers dismissed claims that financial reform has hurt community banks in a research piece published this week, eliciting groans and protests from bankers and their trade associations.
The findings in this brief, as well as research by other economists, show that access to community banks remains robust and their services have continued to grow in the years since Dodd- Frank has taken effect, though this trend has not been uniform across community banks, with mid-sized and larger community banks seeing stronger growth than the smallest ones. At the same time, though, many community banks—especially the smallest ones—have faced longer-term structural challenges dating back to the decades before the financial crisis. These structural challenges underscore the importance of implementing Dodd-Frank in an equitable way that gives community banks a fair chance to compete, which has been a key priority for the Obama Administration.
Although opponents of financial reform often claim that it has harmed community banks, a closer and more comprehensive review of the economic evidence shows that community banks remain healthy. Critics typically point to declining numbers of community banks as evidence that new regulatory requirements are too restrictive. In reality, due to bank branching patterns, the number of institutions does not provide a comprehensive picture of the health of community banks, and other indicators like lending growth and geographic reach show that community banks remain quite strong. Many community banks—particularly those with assets between $100M and $10B—have continued to grow steadily, as evident by their substantial lending growth, increasing market share in agricultural and mortgage lending, and expansion into new counties. With these trends, access to community banks and the important services that they provide has remained robust across many communities. At the same time, longer-term trends in the banking industry over the past several decades—including bank branching deregulation, merger activity, and other factors—often have created long-term challenges for community banks, particularly for the smallest ones. Macroeconomic conditions in recent years have also contributed to the lower rate of new entry by small banks.
Only a group of economists, detached from the real world, could come up with such stunning and tone-deaf commentary. Or, perhaps, they are simply loyal soldiers for the Administration. How can you not be concerned that the number of bank charters has plummeted in the past few years? Isn’t the number of banks important in terms of competition and access to credit?
Moreover, if you simply asked why banks have decided to sell in the past few years, the vast majority cite higher regulatory costs as a reason to merger or sell with a larger institution. They do raise some interesting points, as you cannot blame regulation for everything, but it certainly has been a contributing factor to a massive wave of consolidation, which has helped reduce the number of banks by nearly 25% in the past decade.