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OCC report cites concerns over real estate loans

7/22/2016 | Real Estate Blog

Commercial property prices plunged in Pennsylvania and around the country in the wake of the 2008 financial crisis, and federal regulators and watchdogs have kept a close eye on the U.S. financial sector in the years since to prevent another debt-fueled economic emergency. The Office of the Comptroller of the Currency, which is an independent bureau within the Department of the Treasury, releases two reports each year about the state of American banks, and the first 2016 report indicates that concern is growing about relaxed underwriting standards in the residential and commercial property markets.

The OCC seems particularly concerned about a surge in commercial real estate lending that comes at a time when underwriting standards are becoming increasingly more forgiving. Lending by large banks grew by a modest 3.6 percent in 2014, but the value of new loans shot up by 5.9 percent in 2015. The OCC is concerned because this growth was largely fueled by an increase in more risky interest-only and long-term loans.

The OCC made similar warnings when it released its December 2015 report. However, it was quick to point out that the current situation does not yet pose a threat to the economy. The OCC report concluded that the risks of looser underwriting standards could be contained if financial institutions are made aware of the situation and remain vigilant.

Securing the funds necessary to develop, purchase or refinance commercial real estate can be difficult, and investors or developers are sometimes tempted by loan packages that offer fast approvals and a minimum of paperwork. Experienced real estate attorneys may be able to provide assistance by closely reviewing loan documents and identifying areas of concern.