IT'S TIME TO RE-TRAIN YOUR BRAIN by Christopher Perez Lending

The Most Important part of the Commercial Lending Resurgence

Commercial lending after 7 long years is making a comeback. Talk of CMBS, warehouse lines, securitization, etc. are everywhere. There are trillions in ballooning commercial loans over the next 3-5 years so the tsunami of business is coming. Fortune 500 companies are mounting the pressure for Wall Street to open the CRE flood gates again. After an unexpected shortfall in 2014 it becomes more and more apparent what the market needs, good ole fashion education.

Everyone from the lenders to the mortgage brokers to borrowers are getting their sea legs after the recession. Lending for the small business owner has been all but non-existent for a very long time. Wall Street is doing their part and open for business, but this doesn’t mean we instantly transport to 2007. There have been significant market corrections based on the meltdown. Many of the old rules have changed. Everyone is going to have to learn the new ways of doing business or risk missing the next boom.

One of the major causes of the mortgage markets collapse was mispricing and un-realistically high LTVs. Super low teaser rates with balloons and high LTVs was a recipe for disaster. Any small speed bump from a job loss to property value decline and the apple cart topples. That is exactly what happened. Borrowers with no “skin” in the game could just throw the keys on the table and walk away. In 2015 for the market to rebound proper pricing is going to paramount. It will be imperative for brokers to understand that LTVs will be low, rates higher, terms shorter. That is going to be the norm for a while in commercial lending until the market hits its stride. All pre-conceived notions need to be erased from memory.

Another correction is liquidity requirements especially for banks. Leverage for lenders has been dialed way back. Keeping a dollar on hand to lend two dollars is no longer the rule. It is more the complete reverse. Higher liquidity requirements makes it tougher to lend which means borrowers must come to the table with more cash. Make sure your borrowers know that in this lending environment you must be able to pay to play. Beware of 100% financing claims. If it sounds too good to be true...

Borrower due diligence has also been elevated. In the past if a borrower had decent financials & credit they would be considered for a loan. Now experience, seasoning, and background checks are the norm. Many deals today are declined for reasons that never caused issue pre-recession. Make sure on your new applications that a background check is listed as a requirement to proceed.

Packaging and proper presentation for loan files has also evolved. Some lenders want a PFS while others are fine with a 1003. Title and appraisals will be ordered at different times and will vary from the lender to the broker on who will order. Learn you lenders new process because 9 out of 1o times it has changed in some small way that will affect the outcome of your closing or not.

Even the very terminology we have used for the past 25 years is morphing. You will now hear terms like De-Equity. The maximum loan-to-value for commercial mortgage loans has fallen dramatically. If a borrower doesn’t have the down money necessary they have to raise additional capital and or equity. Equity is typically very expensive. De-Equity is slightly cheaper equity that is structured as debt. Carried interest or promotes and so on is the fresh nomenclature we need to learn. Original terminology and unusual instruments are the ways deals will be structured thus creating the new world order of things.

There are many commercial loan training programs available with prices ranging from $99 to as much as $25,000. There is a budget for anyone. Choose what fits best in your professional plan whether you are part-time, full-time, or want to build a full blown super brokerage. Just keep in mind you get what you pay for, so never be cheap with professional sales training & your career as it will directly translate to your success and wallet.

As we all know knowledge is power. Continued education in any craft is necessary to be at the top of an industry. In 2015 those with the re-tuned skills and proper updated education on commercial lending will reap those pre-recession rewards with an opportunity that is limitless. Get ready for one wild ride. Best of luck! CP