Magazine article American Banker

Bankers Criticize Plan to Curb Realty Loans

Magazine article American Banker

Bankers Criticize Plan to Curb Realty Loans

Article excerpt

Bankers Criticize Plan to Curb Realty Loans

Stung by the implication that they are incapable of safe lending, bankers took issue with a proposal in Congress to reimpose old-time loan-to-value standards for real estate lending.

The proposal to overturn the 1982 deregulation of real estate lending was attached to the Senate banking bill by Sen. Timothy E. Wirth, D-Colo.

It could result in a ban on loans for projects in excess of 80% of value and could impose standards as low as 60% for some loans.

Market Volatility

Bankers argue that such restrictions are out of step with a volatile real estate market and point the finger of blame in the wrong direction.

"Value is a moving target," said William S. Fruit, executive vice president of Signet Bank-Virginia, one of several bankers to argue that imposing an 80% loan-to-value standard on real estate deals would be irrelevant to today's problem.

Mr. Fruit laid much of the slide in real estate on unexpected weakness in the economy. He said that what is needed, if anything, is a "better crystal ball."

Proponents of the Wirth provision, including some key senators and the chairman of the Federal Deposit Insurance Corp., L. William Seidman, say the loans giving banks trouble now would never have been made under the old standards. But bankers disputed that.

"We can look at these loans in hindsight and say they were 100% loan to value," said Robert J. Eisenberg, president of Broadwater Financial Inc., a bank consulting firm in Boston. …

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