Banks Lending at a Bolder RateTuesday, 16 September 2014 00:00
The lending market has obviously improved and this is made evident by the positive increases seen in the housing industry. Before the housing economic crash of 2007 and 2008, banks were lending at an alarming rate through subprime loans. Once the crash took place, lending was at a standstill, but has continued to gain speed over the past year plus.
According to the Federal Deposit Insurance Corporation (FDIC), FDIC-insured institutions have increased their loans for residential acquisition, development, and construction (AD&C) by 4.46 percent during the first quarter of 2014. These AD&C loans have continually increased by 12.2 percent (nearly $5 billion) since the first quarter of 2013.
Banks have only started to lend more confidently for land development in the past half year, but with the recovery continuing on the upswing, the confidence is sure to continue at a higher scale. At the beginning of the recovery of the recession, banks were underwriting loans at an average of 65 percent loan-to-value, but now that percentage is higher, and much higher in some cases, especially where demand is high—like the Houston and Central Texas areas.
Community Bank Decline
Recently, there has been concern over the availability of community banks and their lending ability. According to the FDIC, community banks have declined by more than 1,000 since 2007 (7,139 to approximately 6,000). A majority of those community banks, however, had assets of less than $100 million and two-thirds of those banks were actually acquired through acquisition deals. The number of total community banks has shrunk, but a recent report by the FDIC has shown that community banks with assets between $100 million and $10 billion have increased in the past 30 years.
As the housing recovery continues across the nation, the likelihood of better lending rates from banks will continue to increase. And from the lessons learned from the recession, the loans and those who take them will be better safeguarded.