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Commercial is Different

My main project today is to get to started on a 6 Unit Complex refinance. (Obviously this isn't the property)

This is a new client. We met and discussed ideas last week and very late on Friday she bought in the paperwork I requested.

Since she is a new client, I'm starting from scratch.
I don't know who did her original loan - and that really doesn't matter.
What does matter is she has a loan now that is rapidly painting her in a corner.

She says...
She has a 5 yr ARM.
Her rate started at 9.75% the first year.
Her rate bumped to 11.75% the second year.
Her rate is going to bump again to 13.75% very soon.
She has a Pre-Payment Penalty.
She also has a Second Pre-Payment Penalty.
She is Cash Flow Negative now.
She was barely Cash Flow Even the first year.

I ask you, does that sound anything like a Residential Loan?
Not even in the slimiest loan office - right?

I haven't started looking at her documents but I can take an educated guess at what I'll find.

She has a step loan, or for those that have been around a while a GPM.
I also think she has a Pre-Pay and a Lock Out.

While there is a Sub-Prime in Commercial, features like Step Loans, Pre-Pays, and Lock Outs are not indicators of Sub-Prime. They can be found in A Paper loans as well.

In the end, her original loan officer did a horrible job matching her loan to her goals.
She was sold a bad loan and didn't ask the right questions.

I just hope I can get in there and correct the situation.
We shall see.

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Posted by Mike Mueller on 03/19/2007 10:14 AM

Comments (7)

a paper, commercial, investment, lenders, loan officer, prepayment penalty, realtor, subprime

Originally posted at: Mike Mueller, Social Media.ist: Commercial is Different

This post has been included in California Information

7 Comments on Commercial is Different

MAR

2007

Mike I also do commerical its a whole new ballgame

If you dont do your homework and get the full picture you wont match the producr with what the client needs...............

Good luck Mike i am sure you will do a good job and serve your client well

Eddy

MAR

2007

Mike - I do commercial as well, and I can tell you that you've got a tough one here. Hopefully the customer will have enough equity buildup, or enough credit rating if she goes recourse, to get a rate to put her back in positive cash flow.

Good luck on this. And to all the residential folk who want to try small cap commercial I would point to this as a cautionary tale of what happens when you don't do the homework for your borrower.

Very true Terry!

When I hold an Investment Seminar we may have 150+ people in a room. I'll go into the advantages and disadvantages of Commercial. I first will ask the audience what they think a typical appraisal cost for a SFR is?

I'll get answers ranging from anywhere from "Free" to "$600". Then I'll tell them what a typical commercial appraisal runs. The sound of 150 people gasping all at once is eye opening.

To say this client didn't get a suitable loan the first time around is an understatement.

We'll see what I can do.

Oh, I forgot - in reviewing her Note she doesn't have a 5 yr ARM, she has a 1 Yr ARM

Index: Prime

Margin: 5.5

Her Lockout period just expired, but she does have a prepay of 5%

MAR

2007

Good luck on that Mike. I agree that commerical is different as I have been doing it for a while now and I find the clients lose out when residential only loan officers do a loan as they are only aware of a few places to put them (based on a few lenders marketing only to residential brokers, etc) and thus creates a bad loan for a long time. I hope you can help the client.

Thanks! I started out "commercial", then added residential in 1994.

Wow was that a long time ago!

That makes me feel old - really old.

MAR

2007

I'm a small balance commercial wholesale rep, and looking at the info you supplied we would probably not touch it. DSCR for us is very important, and if the property isn't cash flowing at 1.20 we probably wouldn't do it. Sounds like a hard money deal.

CBA Commercial LLC