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John Podvin: Commercial Real Estate Lending Tightens Guideline Enforcement
03/12/2010
John Podvin
Have North Texas banks overindulged on commercial real estate loans?
Excerpted from Dallas Business Journal Banks in North Texas have a taste for real estate loans...but has their appetite left them with a case of indigestion?
Two years ago, as lenders fought for business, lowered their standards and booked loans at a breakneck pace, bank regulators put forth a set of formulas that defined what they considered an excessive amount of real estate loans.
Any bank that went over the line would be subject to additional scrutiny, the regulators warned.
At the time, the formulas, essentially ratios of real estate loans to bank capital, were described as guidance. In a nutshell, regulators said a bank would attract greater scrutiny if its residential construction and land development portfolio exceeded its total risk-based capital, or if its residential, land, multifamily and commercial real estate loans exceeded 300% of its total risk-based capital.
Now, that guidance has the force of law.
“They look at it as much more strong than just guidance,” said
John Podvin, a banking attorney at Haynes and Boone LLP. “It is a bright line.”