Las Vegas Homes and Real Estate News
Real estate loans vex Fed chief Mar. 09, 2006 Federal Reserve Chairman Ben Bernanke on Wednesday expressed concerns about commercial real estate loans in rapidly growing areas like Las Vegas, while another federal bank regulator warned about high-risk mortgage loans. About 3,400 bankers attended the annual meeting of the Independent Community Bankers of America at Wynn Las Vegas. The meeting ends today. Bernanke's comments on commercial real estate lending concentrations appear particularly appropriate in Nevada, because the state ranks second in the nation in its concentration in commercial real estate loans, according to the Federal Deposit Insurance Corp. Bernanke and John Reich, director of the Office of Thrift Supervision, both expressed concerns about banks that make a large portion of their loans for commercial real estate. "There have been signs of some easing of underwriting standards (for commercial real estate loans)," Bernanke told bankers in his second public presentation since his appointment as chairman. "The rapid growth in commercial real estate exposures relative to capital and assets raises the possibility that risk-management practices in community banks may not have kept pace with growing concentrations and may be due for upgrades in oversight, policies, information systems and stress testing," Bernanke said. "(Bank examiners say) lending standards are generally sound and are not comparable to the standards that contributed to broad problems in the banking industry two decades ago," the chairman said. Banks in rapidly growing areas tend to have a large portion of their loans for commercial real estate, Reich said. While his comment would describe the Las Vegas area, neither Reich nor the Fed chairman singled out banks in Nevada. Regulators may urge banks with large quantities of commercial real estate loans to establish higher capital or net worth, as a buffer to potential problems in a real-estate cycle downturn, Reich said. Reich, however, also mentioned concerns about interest-only and a popular variety of adjustable-rate loans, so-called option pay adjustable-rate mortgages. Option-pay adjustables let borrowers to make a minimum monthly payment, an interest-only payment or interest and principal payments. Homeowners with these kinds of loans may face "payment shock," he said. "For pay option adjustable-rate mortgages, in particular, this shock can be quite dramatic -- under reasonable assumptions about interest rates, as much as a 100 percent increase or more in the monthly payment," Reich said. In Nevada, adjustable-rate mortgages financed 46 percent of the home purchases during 2004, up from 18 percent in the prior year, the FDIC reports. Thrifts have 30 years of experience with adjustable rate mortgages, he said, but some lenders are new to these mortgages. "These products are now being offered in some markets across the country by institutions with limited experience in managing the risk associated with these types of loans," he said. "This product is not appropriate for unsophisticated borrowers or those with weaker credit capacities," Reich said. "I would not want to deprive qualified candidates from home ownership opportunities by declaring this product off limits." Bank regulators are considering new guidance on interest-only and pay-option adjustable rate mortgages, he said. The trade group announced resolutions to oppose expanded powers for credit unions, which bankers complain pay no income taxes. The community bankers called for closing a loophole that permits commercial companies to own Industrial Loan Companies that operate like banks without all the regulation of banks. Also, the group endorsed federal efforts to reduce regulatory burdens that some observers claim hurts the profitability of small banks. If you are planning to relocate in the Las Vegas area, contact us for a prompt response to any questions you have about the Las Vegas real estate market. We invite you to visit our website to view updated daily listings of Las Vegas homes at Free Las Vegas Homes MLS Search |
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