MARKET UPDATE BLOG

The Art of Mortgage Banking – How to Find the Right Lender

November 2, 2016

Mortgage Banking is an art, not a science. It’s an art form that takes years of experience to perfect. As commercial mortgage bankers, it is our job to understand the lending market and match up loans with the needs of our borrowers. The following is an outline of pros and cons for each lending segment. This can be used as a guide to help determine the best fit for your loan.

1. CMBS

Pros

  • 30-year amortization and interest only is available
  • Non-recourse
  • Willing to lend to borrowers with past credit issues
  • Quick closings are readily available
  • Maximum leverage

Cons

  • Complicated and risky rate lock process
  • Loan structures can be complicated (cash flow sweeps, reserves, lockboxes etc…)
  • Cost structure and process is best suited for large loans ($5M+)
  • Defeasance prepayment penalty – costly, highly structured, and restrictive
  • The market for CMBS loans can be volatile. This can affect the pricing and structure of your loan.
  • Servicing related matters can be cumbersome

 

2. Life Company

Pros

  • Most rate lock at application
  • Flexibility in loan structure
  • Competitive interest rates – you will find some of the lowest fixed term interest rates here
  • Does not require depository relationship
  • Servicing related matters are user friendly
  • Typically hold loans in their portfolio
  • Fixed loan terms up to 25 years are available

Cons

  • Conservative on leverage
  • Yield Maintenance prepayment penalty (yield protection). Some life companies can offer variations of yield maintenance with some flexibility
  • Conservative with amortization

 

3. Bank/Credit Unions

Pros

  • Adjustable to 10-year fixed rate terms
  • 30-year amortization typically available
  • Prepayment penalties can be flexible
  • Can offer bridge and construction loans

Cons

  • Paperwork intensive process
  • Underwriting includes global cash flow analysis
  • Depending on geographic location, may require recourse
  • May require a depository relationship

 

4. Agency Lender (Fannie Mae / Freddie Mac / HUD)

Pros

  • Competitive interest rates
  • Can offer high leverage
  • Typically non-recourse
  • Can offer long term fixed terms
  • Long amortization and interest only available
  • Additional advances are available after closing

Cons

  1. Cumbersome process
  2. May require reserves and impounds
  3. Process can be costly (legal fees)
  4. Typically takes 45 days or longer to close

 

This outline is only meant to show generalizations for each lending segment.  Individual lenders offer varying terms in each segment.  Please call your mortgage banking professional for a consultation regarding specific terms and conditions of your individual request.

Sarah Bernhisel
Vice President
sarah.bernhisel@slatt.com