Recent Trends in Construction Lending Practices. Bank Trends

摘要

A record number of insured institutions failed between 1989 and 1993. Studies of this period indicate that commercial real estate and construction loan concentrations, combined with relaxed underwriting standards, exposed a number of institutions to heavy loan losses when regional real estate values collapsed under the weight of excessive property supplies. A resurgence of construction activities in the latter half of the 1990s has renewed concerns about overbuilding and prompted questions regarding the prudence of recent underwriting practices. To answer these questions, the FDIC's Division of Insurance and Division of Supervision undertook a joint project to compare recent underwriting practices of insured depository institutions with those prevalent during the 1980s. The study relied on transaction-level underwriting data as well as interviews with lenders and regulatory supervisors. The study concludes that while current standards are generally more conservative than they were during the 1980s real estate boom, borrowers are nevertheless able to obtain concessions on pricing and terms due to intense competitive pressures. The study also finds a number of factors, with both positive and negative implications, that distinguish today's lending environment from that of the 1980s.