3 ms·
> Banks must re-evaluate the loan once a year based on the average real lease rate for that year OR the next year's contractually committed income. (Not the 'we
by lotsofpulp 2y ago
> Banks must re-evaluate the loan once a year based on the average real lease rate for that year OR the next year's contractually committed income. (Not the 'we would love to least it at X' fabrication.
This already happens.
https://www.investopedia.com/terms/d/dscr.asp https://www.investopedia.com/terms/d/dscr.asp
yesfitz’ comment is not correct, and lenders do care about their collateral experiencing insufficient cash flow. They do not care about specific empty spaces, but if revenue is not as expected, then obviously risk of default is higher, and they will notice.
- yesfitz 2y agoI think "not correct" is unfair. The comment's audience was people who are unfamiliar with the effect of financing on market rents. To that end, I left out some nuance and caveats. I appreciate your expansion on my statement though: "The bank doesn't want that either, as long as the payments are coming in on time." But Debt Service Coverage Ratio (DSCR) looks at Net Operating Income, not just the collateral property's rents. DSCR is recalculated at intervals based on the lender's policy. That policy varies from bank to bank. All banks' policies are examined by regulators, so it's not as though banks can totally ignore DSCR, but there are ways to mitigate policy exceptions that range from business as-usual to "Extend and Pretend"[1] that's been common since the Federal Reserve rapidly raised rates in 2022. 1: https://www.loopnet.com/learn/why-extend-and-pretend-may-be-prudent-for-both-lenders-and-borrowers/124625489/ https://www.loopnet.com/learn/why-extend-and-pretend-may-be-...