Morning Briefing: Commercial lenders could be at risk says Fitch

by Steve Randall09 Nov 2016
Commercial lenders could be at risk says Fitch
The commercial real estate market is set to soften and lending trends are not sustainable in the medium term according to ratings agency Fitch.

It says that as residential mortgage lending has slipped due to lower homeownership rates, lenders have increased their exposure to the commercial sector with property valuations approaching or exceeding pre-crisis levels.

The report notes that although multi-family lending has been the main driver of the CRE lending sector, construction lending has declined. Fitch says this is significant as the loss severity in the last financial crisis was highest for construction lending and it expects the same to be true in the next crisis.

However, it warns that some lenders have increased construction lending and these include some of America’s smallest banks. Not all small lenders are a risk though, due to differing underwriting practices.
Foreclosures continue to fall
Completed foreclosures were down again in September, with a 7 per cent drop year-over-year to 36,000.

CoreLogic reported that foreclosure inventory was down 31.1 per cent year-over-year to around 340,000, 0.9 per cent of all homes with a mortgage. A year earlier the total was around 1.3 per cent (493,000 homes).

The data also reveals a sharp drop in the number of mortgages in serious delinquency to 1 million or 2.6 per cent of all homes with a mortgage. This is the lowest rate since August 2007.

“September's serious delinquency rate dropped by 25 percent compared to a year earlier, the third consecutive monthly acceleration in the rate of decline,” said Dr. Frank Nothaft, chief economist for CoreLogic. “This improvement is continued evidence of the recovery in the housing market, especially given that the decreases were fairly uniform in most cities across the country.”
Insurer ordered to cut homeowners, renters rates
Homeowners and renters who have insurance policies from State Farm Insurance Company will see lower premiums following a ruling from California’s Insurance Commissioner.

The average reduction will be 7 per cent with homeowners’ premiums down on average 5.37 per cent, renters saving an average 20.39 per cent, and condo insurance down by an average 13.81 per cent.

"After considering the evidence and actuarial analyses submitted, I concluded State Farm's homeowner, rental and condo insurance rates are excessive," said Commissioner Dave Jones. "My order reduces State Farm rates an average of 7 percent, saving consumers $78.6 million annually and required refunds of more than $100 million in excessive rates collected since July 15, 2015. As California's insurance commissioner, protecting consumers from excessive rates continues as one of my highest priorities."


Should CFPB have more supervision over credit agencies?