Talk:Commercial mortgage

Commercial Mortage Summary Section

I have seen a lot of commercial loans, and they are always nonrecourse or they have a personal line of credit for a certain dollar amount. I've never seen a borrower attach a guarantee to pay the debt regardless of how far under the property goes. I only work with larger sized loans (above $5m) so maybe this is more common with smaller loans. It is probably difficult to find a source on andecdotal information such as this, and I'm not going to change the text for now. Williameis 19:37, 15 May 2007 (UTC)

--- Nearly all small balance bank or sba commercial mortgages require full personal guarantees of the owners. —Preceding unsigned comment added by 71.202.63.144 (talk) 07:38, 6 September 2007 (UTC)

Small balance direct lenders (in addition to banks) also require a personal guarantor and are recourse loans. 65.122.160.254 (talk) 23:40, 7 April 2008 (UTC)

The Mortgage Bankers Association typically divides commercial mortgages into two main categories according to size: Small Balance and Large Balance. The determination is different with each lender so small balance typically falls into sizes below $2 to $10 million. Large balance is usually $2 to $10 million and up. Most conduit lenders - not that they are around anymore - only consider loans at about $2 million and up. Life companies have traditionally looked at larger loans in the $10 million and up range. Fannie Mae's DUS program, which is very much like a conduit loan has typically been reserved for loans above $3 million.

After you make the division according to size, then you can begin to talk about what is typical for a commercial loan. For small balance loans, a personal guarantee is almost always required. Local bank, GSE, ABS money types for instance. For large balance loans, a personal guarantee is rarely required. GSE, Conduits, Institution money types for instance. The subject market is always important for the decision on guarantee. Very rarely do you get a non-recourse loan in an MSA under 50 thousand. This has been the standard for at least 8 years - That is my only experience.

I am going to just make a brief list of money types and loan sizes and their typical features. This comes from seeing hundreds and hundreds of commitment letters - not just pie in the sky quotes.

Local Banks - Usually stick to smaller balance. Their portfolios are watched closely by regulators and it is faux pax to have too many eggs in one basket. This is a factor for local banks to consider given the amount of funds they typically have to lend out. Some may only have a hundred million or less to lend out in a given year. Terms generally run on the shorter end of the spectrum: 1 to 5 years. Amortizations tend to be shorter than you'd find with national banks: 15 to 25 years. Borrower strength tends weigh heavier in their risk models. These banks are usually quicker to close than national banks and dominate the small balance development market because of their deep understanding of the subject area and flexibility in leverage. Since they are already so familiar with the subject area, they tend to require less 3rd party reports. e.g. Summary appraisals vs. full narrative, usually don't require property condition reports, less extensive environmental reports. Because of this reason, they also tend to have less closing costs than you would find with other types of loans. Personal guarantees are almost always required. Rates tend to be tied to prime. Their capital tends to come from depository accounts and products such as CD's which is another consideration for a local bank in determining whether a borrower qualifies. Many times these banks will ask or require that such accounts are moved to their bank if a loan is made. First lien positions, HELOC's, second perm liens are all typical.

National Banks - Tend to like larger markets and larger deals. Over the past 5 years tremendous steps have been taken for these banks to get into the small balance market which has taken a lot of streamlining and the creation of new underwriting models. In 2002, local banks accounted for about 80% of the market share according to Boxwood Means. Since these banks work nationally they tend to be less comfortable with markets they are unfamiliar with - namely small markets - and tend to require more stringent 3rd party reports which drives the hard cost of the loan up. The higher hard cost is also another reason why national banks have stuck to larger deals. It is less economically feasible for a $200 thousand loan if the cost of reports is between $4 and $25 thousand - the usual cost of 3rd party for national banks. Rates and terms are much more aggressive than you find with local banks. Longer amortizations, longer fixed periods, higher LTV's - for permanent loans, etc. than with local sources. Amortizations tend to run between 25 and 30 years, and fixed periods between 3 and 30 years though most don't go beyond 10 years - again for perm loans. Capital can be from the same sources as local banks if they have branches for banking, but also raise a lot of money from investors and the secondary market. Rates are usually tied to treasuries, LIBOR, etc because hedging with SWAP's is often a risk mitigation technique - also another reason rates are lower. First liens are usually all they do. Secondary financing is typically not allowed until you get way up in loan amounts - then Mezz lenders come into play.

Conduits - Essentially all the same as national banks except their capital comes strictly from investors on the secondary market hence the name "conduit." They don't keep loans on balance sheets.

GSE's - Fannie Mae, Freddie Mac, Ginnie Mae. As far as I know, Fannie Mae only does apartments and mobiles home parks as far as commercial is concerned. I have no clue what Ginnie Mae or Freddie Mac does. These monsters are just enormous. They have huge balance sheets and typically are buying already closed loans from correspondent lenders. They have tended to be stable and reliable because of it. Very similar to national bank terms and underwriting, but since they stick to multifamily - correct me if I'm wrong as far as Ginnie Mae and Freddie Mac are concerned - they do not tend to have a wide array of product offerings. Fixed periods are typically 30 years for small balance and up to 10 years on large balance, 25 to 30 year amortizations.

FHA/HUD - Not sure if they are GSE's or not. Competitive leverage and terms for development deals, but take a LOOOONG time to close. It has been my experience that these things take over 4 months because you usually have to do a tremendous amount of work in order to be invited to apply. Their permanent loans are competitive as far as terms, but not usually in flexibility of qualification or execution time. Up to 40 year fixed periods and amortizations. Work in almost all markets with a wide array of programs designed for different niches. e.g. Low income housing, subsidized housing, depressed markets, properties with government perks like grants and tax benefits - things most national banks do not like or consider in their cash-flow models. The money comes from wherever the government gets its money - China?

I'm too tired to go on right now, but also need to discuss...

Life Comapanies Asset Backed Securities - not a money source but a way of execution for a number of lenders CDO's - again not a source but an execution CMBS SBA - different category all together Private Money Hard Money Institution Money Mezz Lenders Hedge Funds

Usually problems arise when "Residential Experienced" people begin to speculate about the commercial mortgage industry. I know because I used to do residential loans, and they are NOTHING like commercial loans.

Colby Callahan —Preceding unsigned comment added by 71.36.205.89 (talk) 06:10, 13 June 2008 (UTC)

Uses

Should this section be deleted? Would talking about leverage increasing returns be more useful? Williameis 20:26, 15 May 2007 (UTC)

Agency Mortgages

I added a citation needed tag for agency lending taking over the apartment sector. There are still a lot of non-agency mortgages for apartments and I question if agency has taken over much as the page implies. Williameis 20:49, 15 May 2007 (UTC)

They have about a 25% market share or so, but considering that it is Fannie Mae itself which securitizes the loans this would be considered the dominant market share compared to other conduit lenders, life company, and bank market shares. —Preceding unsigned comment added by 71.202.63.144 (talk) 20:02, 2 December 2007 (UTC) Me too! —Preceding unsigned comment added by 216.164.23.115 (talk) 01:26, 11 March 2008 (UTC)

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