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Commercial Loans and Credit Unions

Posted by George Blackburne on Sun, Jan 4, 2009

Credit Unions Are Becoming an Important Source of Commercial Real Estate Loans

The commercial mortgage-backed securities industry virtually disappeared in late 2007 and 2008.  Commercial banks have fortunately stepped up to make a fair volume of commercial real estate loans; but unfortunately they are not approving a huge volume of commercial deals.

As a result, credit unions are beginning to emerge as non-trivial players in the smaller commercial real estate loan market.

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Credit unions have several advantages when it comes to commercial real estate loans. First of all, credit unions were not involved in the meltdown of the sub-prime residential mortgage-backed securities market. Therefore they are, as a group, financially healthier than many of the larger banks.

Secondly, credit unions are portfolio lenders. As a result, they can make fixed rate commercial loans with prepayment penalties far less onerous than the defeasance prepayment penalties required by life companies, CMBS lenders and many commercial banks.

But doesn't the borrower have to be a member of the credit union in order to borrow? Yes, but in 1998 the Federal government relaxed the rules for credit union membership. Prior to 1998 only the largest companies had credit unions. In 1998 the Federal government changed the law to allow credit unions to accept members from outside their core group, as long as those people come from companies or groups with fewer than 3,000 people. Credit unions can also apply for exemptions to accept even larger groups.

The banks howled in protest. Credit unions are exempt from Federal taxation, and the rapid growth in credit union membership cut into their deposit-taking and loan markets. In 1999, however, a Federal appeals court rejected the legal challenge filed by the banks. Credit union membership has grown sharply since 1999.

As a practical matter, therefore, a great many borrowers now fall within some small group that would allow them to join a nearby credit union. Commercial loan borrowers and commercial mortgage brokers should therefore consider local credit unions when trying to place a commercial loan.

Right now credit unions are small players in the commercial real estate loan market. Fewer than 4% of all commercial real estate loans originated in the past twelve months were originated by credit unions. However, ten years ago this figure was less than 1%, and in three years it would not be surprising to see this figure grow to 7% or 8%. Credit unions are indeed becoming an important source of commercial real estate loans.

You can apply for a commercial real estate loan to scores of credit unions, as well as hundreds of banks, using, the free commercial mortgage lender databank.

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