The Federal Reserve recently released its quarterly Senior Loan Officer Opinion Survey, and its findings indicate that lending is picking up across a range of categories. Although the survey is specific to bank lending, other lenders are playing a significant role in the market for capital as well. One such lender is Cambridge Realty Capital. This Chicago-based firm has over twenty years of experience in real estate financing, and currently focuses on the senior housing market. Parties seeking capital for debt refinancing, acquisitions, sale/leasebacks, or joint ventures should contact the firm to learn more about the many different types of financing options it offers for these and other purposes.
Banks Ease Lending Standards Amidst Growing Demand for Capital
The Federal Reserve surveyed 75 U.S. banks and 23 foreign banks operating in the United States for its Senior Loan Officer Opinion Survey. It found that an increasing number of banks eased their loan standards in various categories between the first and second quarters of the year. For example, many banks eased their standards for home mortgage loans. Relaxed standards for home mortgage loans coincided with increased demand for these loans, even though interest rates increased slightly during the period. Economists were happy to see this increase in demand, as it could portend better things for a housing market still feeling the effects of the Great Recession. Banks also reduced their standards for credit card loans, while at the same time increasing the limits on these loans and reducing the minimum credit score required. Lastly, many banks reduced their lending standards for business loans. Approximately 11 percent of banks surveyed reported relaxing their standards for loans to midsize and large businesses, while 8 percent reported relaxing their standards for loans to small businesses. No banks surveyed tightened loan standards for these businesses. More than 30 percent of banks also reported experiencing increased demand for business loans, while only 5 percent reported experiencing decreased demand for these products. Economists believe these trends show that businesses are expanding and, as they continue to grow, so too should the economy and the job market.
Reasons for Softer Lending Standards
The survey indicates that increased competition from non-traditional lenders played a role in banks easing their loan standards during this period. It also found that the Fed’s quantitative easing program encouraged softer lending standards by providing banks with additional capital they were eager to lend out. Under the quantitative easing program, the Federal Reserve purchases billions of dollars in fixed income securities from financial institutions each month in the hope they lend the additional capital to worthy borrowers. According to the survey, this is exactly what happened. Banks also cited an improving economic environment, increased liquidity in the secondary market for loans, and an improvement in their own liquidity positions as reasons for easing their lending standards and providing more capital to borrowers.
At first glance, the easing of lending standards might frighten some economists by evoking memories of the factors that led to the previous financial crisis and recession. Yet for the most part, lending standards are still much tighter today than during the period leading up to the Great Recession. With the Federal Reserve slated to wind down its quantitative easing program in October, and the federal funds rate expected to increase in the future, senior housing providers and others seeking capital to acquire senior housing assets, or for other purposes, should continue looking toward Cambridge Realty Capital for assistance with their financing needs.