President Trump's new executive order on mortgage credit could open the door to more community bank lending for small-scale multifamily development — but industry experts say it's more suggestion than mandate.
Lisa Knee, managing partner and national leader of EisnerAmper's real estate practice, tells GlobeSt.com the potential change could make construction loans easier to secure for smaller projects. "It's more about classifying certain loans for bank regulators, so it should be making it easier for [smaller banks to grant] one to four family residential construction loans," she says. "It should allow a community bank to have less supervisory constraint on making those loans, so it should help with capital."
The executive order, issued last week, directs a group of federal regulators — including the Federal Reserve, the Consumer Financial Protection Bureau, the National Credit Union Administration, the Federal Deposit Insurance Corporation, the Comptroller of the Currency, and the Federal Housing Finance Agency — to "consider, as appropriate and consistent with applicable law, revising supervisory guidance." Specifically, the agencies are asked to exclude one-to-four-family residential development from the commercial real estate concentration guidance and to ensure supervisory expectations "support responsible construction lending by community banks."
According to the administration, the goal is to improve mortgage originations, promote innovation, reduce lending costs, and expand access to housing by tailoring regulation for smaller banks with less than $100 billion in assets. Supporters argue that smaller residential projects pose a far different risk profile than larger multifamily, office, retail, hotel, or industrial developments.
"You should have easier access in a smaller market, and if you're an investor, it could bring more supply for an investment opportunity," Knee adds. "It may improve the liquidity of the market for this kind of construction. If they do it and it [helps] a local community, that's great."
Still, any impact is likely to unfold slowly. The directive only asks agencies to consider changes — it doesn't mandate immediate action. "It's not going to change credit standards or anything like that," Knee says. "It's whether the regulators want to issue clear guidance in the agencies, and how the banks are going to apply it in practice, and how consistently the guidance is implemented across different agencies."
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