NEW YORK CITY- Despite the Federal Reserve slashing interest rates to near zero, similar to actions taken during the 2008 Financial Crisis, bankers have pressed the brakes on originating new loans as the economic environment becomes more uncertain amid the coronavirus, Maria Avellaneda, a broker at brokerage firm Compass in New York City, tells GlobeSt.com.
Although the Federal Reserve is trying to spur as much liquidity in the market as possible in the short term, it has had the opposite intended effect. “ Bankers are very reluctant to give money,” Avellaneda said. “We’ve been in different closings and with the way rates are alongside the decrease in property prices, they’re asking much more questions.”
The capital markets are concerned for good reason, according to Avellaneda. Stakeholders are flocking to capitalize on low-rates, many in the form of refinancings, which creates greater risk in the market place if they’re unable to repay that debt. “Banks are not offering rates close to zero, you still see them around 3 percent,” she said. “Banks need certain margins to operate and they want to make sure borrowers can pay back loan amounts.”
According to a recent GlobeSt.com article, Avellaneda noted some commercial properties risk seeing tenants default on loans because tenants, some of which are small businesses, don’t have income coming in and overall transactions have slowed down like never before near financial-crisis levels. “We’re reacting to something completely out of our control, it’s not like the financial crisis and how it was related to mortgages and specialists knew better to figure out measurements and how to control it,” she said.