Covid-19 Banking Situation
We wanted to take a minute to give everyone an update on the current banking situation, which has been affected by the recent Covid-19 pandemic. We have been hearing a lot of feedback regarding how long banks are taking to issue term sheets, follow up on submitted deals and arrange closings. This is due to a number of factors:
- There are a lot of banks that are not taking on any new business. These banks would prefer to deal with their current mortgage pipeline, giving them a chance to get existing business closed while hoping conditions improve.
- Many banks will lend at non-attractive rates and terms. These banks understand that they would be looked at poorly if they stopped lending. Instead, they offer deals they know people will not accept.
- Underwriting guidelines have changed at all of the banks. Banks are increasing their assumed vacancy rates, as well as taking into account loss of collections. Some banks are not counting any retail or office income. Some banks want a better understanding of who the tenants are, how long they have been around and whether or not the bank thinks they will overcome this crisis.
- Many banks are now taking additional escrows, some up to one year of rental income. These escrows can then be used to pay the mortgage if a hardship can be proved or they will be released after a predetermined period of time, given that the Covid-19 crisis has abated. Some banks have reduced their LTV’s and almost all want to see the last three months’ rent collections.
- Commercial lending departments are primarily working remotely. The loan officers, underwriters, credit teams and credit committees are all in different locations which hinders the process of getting approvals or answering questions in a timely fashion.
- Banks are swamped with loan applications for the PPP program and Disaster relief program.
- The good news is, although it is a slower than normal process we know who is still lending and because of our banking relationships, we can still get deals done. Rates are still extremely low with some aggressive lenders. We are still seeing as low as 2.75% for multifamily, 3.0% for owner occupied and 4.0% for mixed use, retail and office.
Author: Andrew Walsh