LGIS Group (LGIS), the pioneer of Commercial Property Loan Insurance (CPLI) for the commercial real estate (CRE) lending industry, today announced the official availability of its Deposit Assurance Service, which provides financial institutions with a compliant methodology to gain additional deposits from funds currently committed to supporting liquidity covenants on CRE loans within their portfolios.
Today’s traditional CRE lenders are starved for alternative inroads to increase deposits and have few if any options available. The FDIC reported that total deposits across all FDIC-insured institutions slowed in 2018, rising only a meager 3.8% with growth almost exclusively limited to larger organizations (greater than $10 billion in assets). LGIS’s new, innovative program offers financial institutions of all sizes an effective strategy to grow both their loans as well as deposits, providing much needed capital reserve relief, which is like generating additional free deposits.
Typically, financial institutions require a liquidity covenant of 10% of the loan amount on a CRE loan. This exists as a covenant, not additional collateral, and is held by another sponsor financial institution. As such, it is largely inaccessible by the lending institution if a problem arises. With LGIS’ Deposit Assurance Service, financial institutions have the option to release the liquid collateral covenant for borrowers in place of a direct 1-2% cash deposit, which remains with the lending institution for the entire loan term providing true “sticky” or core deposits and additional liquid collateral.
This approach benefits borrowers by reducing the amount of idle capital that they must direct toward supporting traditional liquidity covenants tied up in low interest earning cash or cash equivalents and benefits financial institutions by enabling them to grow deposits, strengthen their loan-to-deposit ratios and have more direct access to funds to counter times of stress for individual CRE loans.
“The CRE industry is ripe for innovation and LGIS exists to provide lenders with modern loan solutions designed to drive deposit growth and better optimize risk,” said David Eichenblatt, President and Founder of LGIS Group. “With traditional liquidity covenants, lenders are often forced to either sue to access those funds or liquidate the asset if trouble arises. It is not liquid collateral. Our Deposit Assurance Service eliminates this problem for bankers, helping them increase deposit gathering, attract more loans and serves as true additional liquid collateral.”
Through its patented CPLI solution, LGIS provides both CRE lenders and borrowers an alternative to outdated, ineffective personal guarantee and liquidity covenants. Similar in function to private mortgage insurance (PMI) in the residential mortgage lending market, CPLI is institutional grade-rated loan guarantee insurance that offers lenders enhanced risk mitigation, increased capital relief, and positions them to more profitably close more deals by redirecting non-earning assets to support increased CRE lending and other lending initiatives.
About LGIS Group
LGIS Group is the pioneer of Commercial Property Loan Insurance (CPLI) for the CRE lending industry. Through its patented, institutional grade-rated loan guarantee insurance, LGIS Group eliminates the need for bankers to secure onerous personal guarantees from valued customers when providing commercial loans to fund their development, redevelopment and value-add projects. As a proven risk transfer and mitigation strategy, LGIS Group provides significant capital relief to bankers, empowering them to increase volume and profitability across their CRE portfolios while increasing the customer relationship and deposits. LGIS Group also provides benefits for borrowers by transferring risk, lowering costs and expanding their overall capacity for deals, as well as intermediaries (i.e. mortgage brokers, insurance brokers) by offering an impressive new market and revenue source for servicing customers from a project's inception to take out. www.lgisgroup.com