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Banking regulators tell banks to tighten loan standards

Federal regulators have warned banks in Maryland and across the country about the consequences of loose lending practices. In a joint statement issued on Dec. 18, the Federal Reserve's Board of Governors, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation said that they were particularly concerned with commercial real estate loans.

According to federal banking regulators, underwriting standards for commercial real estate loans have gone down, and many banks are allowing a significant number of exceptions to their underwriting policies. The effect of these loose lending standards could have a negative impact on the financial health of the banks themselves and the country as a whole, regulators warn.

Over the next year, banking regulators say that they will be watching the lending practices of banks closely, especially banks that do a lot of business in the commercial real estate lending sector. Regulators have asked banks to create tougher underwriting standards and work on raising more capital. In the recent statement issued to banks, banking regulators listed some steps that banks could take to manage lending risk more efficiently. One of the suggested steps was to analyze a borrower's likelihood of repaying debts when interest rates go up.

When banks start tightening their lending standards, commercial real estate developers may find that it becomes more difficult to secure loans for new projects. During the process of applying for a loan, they may want to have representation from an attorney. An attorney may also be able to represent commercial real estate developers in other aspects of their business such as contract negotiations and permitting.

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