Am I the only one who thinks rate caps do more harm than good?

I was at a small CRE meeting in Austin last week and a developer said rate caps just push lenders out of secondary markets, making things worse for everyone. Has anyone else seen this play out in their own deals?

2 comments

2 Comments

harper_smith3d ago

I was at a similar conference in Dallas last month and heard three different lenders say they're pulling out of smaller markets entirely because of rate caps. The caps force them to price in so much risk that their models just don't work for smaller loans anymore. A friend of mine runs a small apartment complex in Oklahoma and his local bank stopped doing variable rate loans altogether after the caps hit. Now he's stuck with a big national lender who charges way more fees. The developer in Austin had a point. Caps might help a few borrowers in big cities, but they're crushing access to credit in secondary markets where the margins are already thin.

noran213d agoMost Upvoted

Question whether a comment at a conference is really proof of a widespread problem, since one guy's deal doesn't make a trend. Rate caps can be annoying for lenders but they also keep borrowers from getting eaten alive in volatile markets, so it cuts both ways. Without more data from actual secondary markets, this feels like a lot of hand-wringing over something that's probably fine.