Current Trends in Loan Sourcing and Participations

By Dexter De Mesa

It’s not news that across the industry, credit unions are flush with deposits and are experiencing widespread challenges in deploying excess liquidity.  As a result, new trends have emerged in both commercial loan sourcing and participations.

The trends and information shared below are derived directly from experience with CUBG’s network of nearly 400 brokers and more than 600 credit unions across the nation.

Net Yields

CUBG conducted surveys in Q3 2020, Q4 2020, and Q1 2021 on the appetite for participations. One of the key focuses was net yield, defined as borrower interest rate minus lead lender and CUBG servicing. For all three quarters surveyed, the collective market responded with a 3.5% net yield floor. More recently, however, net yields have followed a downward trend ranging between 3.00% to 3.50% based on activity through CUBG’s Digital Loan Marketplace.

Pricing

Another trend that has developed seemingly overnight, is the use of premiums. Premiums, as they apply to commercial lending participations, have long been rejected in the credit union space. However, we are now observing a willingness to pay premiums ranging between 100.25 and 103.00, in conjunction with net yields between 3.00% through 3.5%. In the current environment, premiums have become the norm rather than the exception.

Collateral

Other notable trends include the expansion of loan and collateral types. Although multifamily properties remain the industry’s all-time favorite, other collateral types such as office, retail, industrial, and blanket loans are becoming more common. CUBG is also seeing an increase construction lending activity with more credit unions hiring to expand their internal construction lending expertise and more participants ready and willing to entertain these loans.
Needless to say, many of these current trends are directly influenced by the increasingly wide supply demand gap in the market. The influx of deposits negatively impacts loan-to-share ratios and net worth, causing credit unions to assertively search for lending opportunities.

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