Mortgage Banking

Making sense of commercial real estate finance.

The Current Credit Market

Posted by Jordan Crouch on February 25, 2008

There is talk of another cut in the Fed Funds rate. If this happened it would be in mid-March when the Federal Reserve meets next. What effect this would have on the Ten Year Treasury Yield is tenuous. If the concerns of rising inflation are correct, the 10 year T-Bill will begin rising, not lowering, making interest rates on commercial loans rise. If this is the case, the days of 5% (and even 6%) interest rates will be a thing of the past.

All but a select few lenders’ loan allocations for 2008 will be smaller than 2007. And with the conduits out for what is expected to be the rest of this year, it means there is less money chasing deals. Lenders are being ultra conservative in underwriting, using lower LTV’s and overall choosier on what deals they will do.

What should the typical borrower do in this type market? If a borrower is anticipating needing a loan within the next 9 to 14 months, getting that loan now is the best option. Even with a potential Fed Funds rate cut, the threat of inflation forcing the 10 year T-bill higher is a real possibility.

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