Mortgage Banker Spotlight: Michael Tanner

Michael Tanner joined PSRS in 2003 and currently holds the title of Executive Vice President and Principal. Mr. Tanner attended Brigham Young University for his undergraduate degree where he received his Bachelor of Arts in Economics. During his time with PSRS, Mr. Tanner has worked as an analyst and gone into production on his own, and in 2006, he was awarded Rookie of the Year by Standard Insurance. Mr. Tanner is credited with over more than $1 Billion in loans originated. Below is a Q&A on Mr. Tanner’s recent take on rising interest rates:

With rising interest rates, how are the life companies responding?

Even with rising interest rates, we’ve seen spreads come in for the best properties, such as moderate leverage industrial and apartment buildings, where on those deals we’ve seen spreads as low as 100. Low leverage office buildings have had spreads of 110, 10 years IO right now. Long-term money is very inexpensive because the yield curve is flat. The increased cost to go 15 years is nominal compared to the 10-year cost. For an extra 5 years you may only see an increase of 10 basis points.

Why does the yield curve being flat have an impact on interest rates?

The yield curve being flat means the difference between short term rates and long term rates is less than the historical norm. In our current situation, short- term interest rates have risen faster than long-term rates. The marginal cost of borrowing longer is cheaper that its ever been. So, every year that you add to your loan, on a per cost basis, it is less than what it has been historically.

Where are life companies winning business? Why is it attractive?

Longer term deals, partially due to the yield curve. Many life companies have long liabilities right now, creating a need for long assets. They have insurance policies written for 20 years, they need loans that go 20 years, they need their money out for a long time.

Where are you winning business?

Most of the deals I’ve been doing are longer than 10 years. For a long-term holder, there is no reason to do a short-term deal. For most borrowers, their long-time goal is to put financing on their properties that carries them through a long period of time. There are some properties that might not be ready for that at this point so they might require some sort of bridge. Therefore, we’re helping them with their bridge needs right now with an eye on providing them with that long-term debt in the future. There are programs that our life companies have that provide competitive bridge loans.