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Banks have transitioned to real estate lending

Maryland residents may be surprised to learn that American banks were once prohibited from making real estate loans of any kind. These restrictions were put into place in 1864 by the National Banking Act, but legislation like the Federal Reserve Act and the McFadden Act eased banking restrictions and mortgages and other real estate loans now make up about half of all bank lending. Mortgage borrowing surged in the months leading up to the 2008 financial crisis, and many financial experts predict that looser underwriting standards and a flood of commercial property borrowing could be creating another bubble.

When the United States economy was based mainly on manufacturing, the financial sector accounted for less than half of the nation's economic output, but that share has now grown to 83 percent of GDP. This growth was made possible by the transition to a service-based economy that has been sustained by an ever increasing amount of consumer spending. Commercial and industrial lending made up more than 40 percent of bank financing in the late-1950s, but it only accounts for about 20 percent of today's loans.

Smaller banks may be particularly vulnerable to peaks and troughs in the residential and commercial real estate markets. There are 4,700 banks in the United States with less than $1 billion in assets, and property loans make up about 75 percent of the lending portfolios of these smaller banks.

Experienced real estate attorneys may help commercial property buyers, sellers and developers to protect themselves from market shifts by limiting their exposure to legal issues like zoning and land use disputes. Attorneys could also inspect loan documents to identify provisions that could prove troublesome and review commercial property leases to ensure that the interests of their clients are adequately protected.

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