We offer free lender training to banks that want to improve their marketing, customer service and loan profitability. One of the things we teach is how to go after the huge refinancing wave that is taking place in securitized commercial properties. If you remembered back in 2006, the securitization market hit its high in volume, and many of these deals were 10-year fixed rate transactions that all come due in 2016. Due to higher capital/compliance requirements for large banks to refinance through re-securitization, pricing has increased giving community banks an excellent opportunity to compete. Below we detail how to win this deals and how to compete.
Banks Are Winning
To see the progress that banks are making, we pulled data from Real Capital Analytics, Trepp and JP Morgan. To our delight, we found that in 2016, banks are winning approximately 31% of these transactions (below) or more than double the 10-year average.
The reason why banks are winning is that more and more banks can offer 10-year fixed rate loans with 20 or 25-year amortizations which are the bulk of these refinance opportunities. Further, because large banks that handle securitization can have to hold more capital and take more liability for the loans they securitize, pricing has increased. What was an average of a 2.32% spread just three years ago, has increased to an average of 2.45%. Since most of these are sub-70% loan-to-value and greater than 1.5x debt service coverage, community banks can offer competitive pricing at Libor + 2.26%, be very competitive for a 7-year transaction and still achieve a 13% risk-adjusted return on equity for most transactions (real deal below).
More Ways To Compete In The Refinance Market
Teaching your lenders how securitizations work and what competitive factors your bank might be up against is a good first step. We posted the matrix that we use internally to teach our lenders, and it can be found in our blog post HERE.
From there, it is speed, and your bank has to architect your lending approval process to turn around a preliminary approval in 3 to 5 days.
Finally, our lending training team just completed a Ritz-Carlton Memorable Customer Experience workshop in lending, and if we are near you, we can come by to train your lenders for free in our shorten 2-hour session. This not only increases your lending tools, but we specialize in tracking these loans coming up for refinance. While we actively use these leads for Florida, they largely go to waste in other parts of the country. Thus, this is a great asset your bank can leverage.
Putting It Into Practice
Approximately, $48B of loans have come up for refinancing already in 2016, and there is well over $50B more to go for the rest of the year. Of these maturities, approximately, $37.5B are prime candidates for community banks, and we would like you to win these as opposed to going to insurance companies, regional banks or government-sponsored conduits such as FHLMC’s Freddie K program.
If you are interested in taking us up on our offer, shoot us an email and we will let you know when we are in your state next (if nothing else we can do a webinar). If not, take another look at pricing and brief your lenders on how to compete. Transactions that are coming out of securitizations tend to be higher quality with a 10+ year track record making credit risk relatively small. These are exactly the transactions that community banks should be considering to improve the credit quality of the portfolio through this growth cycle.
Submitted by Chris Nichols on June 07, 2016