Rate Reactions Across Lending Segments

Recent developments in the housing market and uncertainty over the Federal Reserve’s latest policy meeting have animated the market once again, sending U.S. stocks downward over the past six sessions. Anxiety about impending action by Bernanke has also continued to push up Treasury yields in recent weeks, which has elicited differing responses in interest rates from commercial mortgage lenders. Here’s how the CMBS, Banks, and Life Insurance companies have each reacted.

CMBS
Although swaps are a bit wider today than they were at the beginning of the summer, spreads for general CMBS product have tightened up during the same period by 20-30 bps. CMBS lenders are currently providing 10-year fixed rate financing in the high 4% to low 5% range for LTV up to 80%. Keep in mind that for low LTV product 55% or less, CMBS lenders are in many cases the most competitive debt available. For low LTV product, spreads over swaps have come in to levels in the 140-160 range resulting in rates between 4.40% – 4.60%.

Banks
Banks continue to ramp up their lending platforms. These institutions currently have a competitive advantage due to very low borrowing costs from the FED, which in turn allows for equally competitive interest rate programs. Most banks are still focused on short term opportunities, and are offering 3, 5 and 7 year fixed rate programs with rates priced over corresponding T-bills in the 200-300 bps range depending on LTV and quality of asset. 10, 15 and even 20-year SWAP rate products are being provided at levels in the mid 4% to 5% range. Loan to values are consistently in the 65-75% LTV range. Until the banks’ cost of funds actually costs them something, we expect continued ramped up lending efforts.

Life Companies
Life Insurance lenders have been especially active so far this year, with little indication of change ahead. Life Insurance Co’s are typically lower leverage players, generally falling in the 65% LTV or less range. They have raised their rates as the Treasury has climbed, but have not been not in lock step with the yield increases. Rates for this lender segment are currently in the 4.25%-5.50% range.