Commercial Mortgage Broker
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Topic: small balance lending
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Conduit or Portfolio Lender?

Financing the small balance loan request
Topic: small balance lending
Investors interested in purchasing or refinancing a small investment property usually had very little in the form of financing options to choose from. Most lending institutions were of the mindset that bigger is better, why spend the time trying to fund ten $200,000 properties when these banks could more efficiently spend their resources financing a $2,000,000 property. Many lending institutions place lower limits on the amounts they will finance, for some $1,000,000 is the low, others $3,000,000, still some place their lower limits at $4-$5 million. This really created a void in the small balance arena and an opportunity for savvy brokers.

We know why a lender would want to tap into this market, but what are the benefits of small balance lenders to a small to medium sized property investor? Traditional commercial lending is for the most part unbendable, because these loans are underwritten to meet certain standards, they are then pooled and sold on the secondary market as Commercial Mortgage Backed Securities. There is little wiggle room in terms of underwritting these loans. For example a typical conduit deal for a 20 unit apartment complex for $1,200,000 would require the following to receive the most competetive financing, in other words the lowest possible interest rate-

LTV-80%
DSCR-1.20X
Vacancy-5%
Management fee-4%
Cap rate-9.75%

Now keep in mind these constraints will vary slightly between markets and even some lenders, but this is average. In addition certain credit score and net worth requirements come into play and there is no secondary financing allowed by sellers so 20% is the minimum a full documented borrower will be required to put down, recourse is usually full to the borrowers if the deal fails to meet certain requirements. Investors will be required to pay a pre-payment penalty, yield maintenance or defeasance. Application fees can be significant, add to that the appraisal, environmental, surveys, title insurance, etc. and your small property investors are priced out of the deal.

The borrowers can turn to portfolio or hard money lenders, but lets face it unless there is an urgent need to close or huge upside potential who wants to pay 15%-20% interest?

Now take this same deal and look at the small balance alternative. First off lets just get this point made....You will have to pay a slightly higher interst rate for these non-bank propgrams, but lets examine why these loans can be a great alternative for the small property investor:

Flexible cash down requirements - Manay lenders will finance up to 90%-95%LTV with subordinate financing allowed, most borrowers can come up with 10% down.

Unlimited cash out on refinancing - Borrowers have the ability to cash out as many times as they want with no seasoning requirements, this allows property owners to make enhancements to their property.

Flexible Pre-payment penalties - These lenders allow for shorter prepayment lock-out terms and amounts, with no yield maintenance or defeasance requirments.

Limited Documentation or Stated Programs - Some borrowers prefer to disclose as little information as necessary or who can't document income fully.

Longer terms and Amortizations - Typical loan terms for commercial property is 10 year terms with 20-25yr amortization. Non bank programs often offer terms ranging from 15 yrs to 30 yrs. with 30 yr. amortizations.

Low to no application fees - most programs require as little as $500 lender fee, no lender points and is refundable if documentation is received within 10 days of pre approval letter.

Minimal credit score- Programs allow minimal credit scores 580+

No minimum DSCR - Because these programs use a residential underwriting style the borrwers ability to pay is taken into account instead of just the property cash flow being the primary means to service debt.

So as you can very well see, small property owners can still receive reasonable financing for deals that don't fit within the traditional lenders underwriting guidlines. The next time you have a client who's needs fall within the range of $100,000 to $1,500,000 look to a non bank alternative, some lenders will even loan up to $3,000,000 and still consider it small balance.

Commercial Mortgage Group provides creative financing solutions for Multifamily and Commercial Real Estate investors in the 50 United States. The company arranges financing for requests ranging from $100,000 up to $500,000,000 for purchase, acquisition and development, refinancing and construction. You can learn more about the comapny by visiting the website of Commercial Mortgage Group

Low to no cost marketing
Low to No-Cost Marketing

During my years as a mortgage originator, I was constantly looking for new marketing strategies. I loved to accumulate ideas. Big, small, short term and long term. The theory being – the more ideas there were to choose from, the easier it would be to find the “Golden Nugget”. The one that would get the phone to ring and the applications rolling in.

The best ideas, of course, were the ones that had little to no cost associated. Cost vs. potential income or return on investment (ROI) is something that every loan officer should analyze as soon as they contemplate a new marketing strategy.

Mail Campaigns (low cost)
Select a group of potential referral partners and over a 60 day period send them something every other week to reinforce your strengths as a mortgage lender. This can include such items as a razor, stating “Does your current lender shave it too close at closing?” or Hand Lotion with the tag line “From start to finish, we’ll make sure you have smooth transactions”. Another idea is to write a letter introducing your support staff and extolling their experience as well as company strengths along with a toy slinky stating “We are flexible to meet the needs of your business”.

Jason Tonioli with Bank of Utah in Ogden, UT has had success with a letter to Realtors and builders stating "Some things go better in pairs...". Jason then puts one glove (man’s work glove or woman’s gardening glove) in the mailing, explaining that he will drop off the match and then the letter states, "After we meet, I hope you'll agree that together we would make a great "pair". A similar letter was sent to local businesses as well as estate planning attorneys with the wording changed some to fit the reader.

Increasing web-site traffic (no cost)
With so much information on the internet, finding a way to get people to your website is often difficult, yet a website can be a very effective selling tool. A great marketing idea is to offer free movies if they go to your web-site. Netflix has an affiliate program where you can put a link on your website offering a 14 day free trial to their movie rental service.

You can use this idea to target first time homebuyers stating “renting movies is fun, renting your home isn't. Visit my website for two weeks of free movies with Netflix”. Or for other types of potential clients you can say “We make the mortgage process simple at ABC Mortgage. In fact, you can have 14 days of free movies on us while we take care of your loan. Visit my web site for your free movies from Netflix”.

Closing Gifts (low cost)
As I train groups of originators, I am amazed to find that there are still many that do not attend closings. This may be because they are new and do not want to put themselves in a position where they couldn’t answer a question, or perhaps the originator doesn’t see the value of their presence at closing. First of all, if you are reluctant – Get over it! Yes, the first few closings are intimidating, but this is the job you chose and attending the closing is part of your job description. Second, this is the absolute best time to hand out your card with the sole purpose of asking for referrals. You just gave this person their dream, they will want to reciprocate the favor. Unfortunately, most borrowers don’t think of giving referrals unless we remind them.

A small gift at closing is a great way to say Thank You. This can be something such as a small house plant in a nice pot or a self-inking address stamp. I would highly recommend having a label with your name and phone number placed on the gift. This way, they are always reminded of your thoughtfulness.

Another great idea is to put together a package of discount offers for local businesses. This may cost you nothing as many business owners are willing to give coupons in the hope of retaining a new customer. This can be anything from a plumber, mechanic, pest control, local bakery or accountant, you are only limited by the number of businesses in the area. The wonderful thing about this idea is that it gives you the opportunity to network with local businesses. Let’s say you contact 20 individuals to provide discounts – you now have a networking group of 20 people that will most likely be happy to refer clients back to you.

Phone Calls (no cost)
Using the phone to get more business is a fantastic no-cost idea. John Bianchi with Countrywide Home Loans has used this concept to consistently increase Realtor referrals. You can easily do this highly successful phone campaign by first compiling a core list of Real Estate Agents (10-12) you want to get business from. Then, utilizing a script, call their office every Friday morning, preferably between 8 and 9 a.m. By calling during this time, you will most likely get their office voice mail, plus you are demonstrating a strong work ethic in being at your desk early.

The script could go something like this: “Hi, this is Susan with ABC Mortgage, I wanted to touch base and let you know I am available this weekend if you are unable to get a hold of your current lender. You can reach me all weekend at 123-4567. I look forward to helping you. Have a great day!” This can also be done on Mondays if you prefer not to be available during the weekend, stating “I wanted to wish you a great Monday morning and let you know I am in the office all week if I can help any of your buyers”.

This call program will also work well for builders, other potential referral partners or even Realtors you currently receive referrals from, just modify the script to fit the person. Remember that with any script it is important to practice to a point where it will sound natural. Call your own voicemail and leave the scripted message so you can listen back and analyze the sound and effectiveness of your recording.

Consistency is the key to success with most marketing ideas, but especially this one. The first few weeks your calls are received, the agents may not pay much attention, but after a while, your calls will start to get noticed. You will be perceived as efficient (always at work early), trustworthy (no one else calls them so consistently offering help), non-intrusive (agents are being bombarded with lenders stopping by unannounced to ask for business). At some point, they will take you up on that offer to help.

Yourself – the power of relationships (no cost)
Sometimes, in the excitement of finding new marketing strategies we forget the power of using relationships in our goal of higher production. Developing strong relationships with referral partners is low cost (remember, you can’t buy friends. At least not long lasting friends), and highly rewarding. Rewarding both professionally and personally.

Amazingly enough, two loan officers can have the same amount of product knowledge, same rates and the same marketing ideas; yet have vastly different outcomes to their marketing efforts. The difference? The successful loan officer was willing to take the marketing idea and use it to cultivate a deeper relationship while the other loan officer expected the marketing idea to sell him.

For example, when you send a letter, place a follow up phone call to make sure it was received and see if you can be of assistance. When you develop a campaign to phone agents every week do it each week and commit to at least six months before making any changes. When you give a closing gift, do it in person. Go to your closings and ask for referrals. These seem like simple ideas, but most average loan officers are not taking full advantage of their marketing efforts. They market, but then forget to “close the deal” with consistency, persistence and positive attitude.

After using these ideas, you may find your closings have increased with a decrease in spending. And don’t limit yourself - marketing ideas are everywhere. Use your imagination to find something that fits your selling personality and go for the gold.

Reprinted with permission from Mortgage Originator Magazine

Marketing through service
Marketing Through Service
Reprinted with permission fromThe Scotsman Guide, August 2005

The number one complaint from Real Estate Agents is that lenders beg for business, but when given a deal, don’t perform as promised or expected. The cliché “under-promise and over-deliver has been used so often, most originators don’t take the time to analyze if they are actually giving a higher level of service than what was expected.

Customer service is your secret marketing tool. Without consistently giving over the top customer service, your marketing efforts will be in vain. It won’t matter how many marketing touches or marketing dollars you spend, if you don’t follow through with service to realtors and borrowers, they will have no reason to send referrals to you. It will take longer and cost more to get each new loan into your pipeline.

A couple of years ago, I had an experience that reinforced the marketing power of customer service. A past borrower from eight years earlier phoned me at home. He had moved across the country for a job transfer a year after purchasing his home through me. During this seven year time, I had moved to a different part of the state and changed companies. He had recently relocated back and was looking to buy a home. His agent referred him to a couple of lenders that had not impressed him. He remembered the positive experience I had provided and decided to see if I was still in the mortgage business. After using directory assistance he called my home to see if I was willing to help him with his financing. This was an excellent borrower that came to me only because of the service I had given eight years earlier. This experience was definitely one of the highlights of my career.

Customers expect great service. This has now become the minimum requirement for originators. What can you do to take service levels from great to over the top? What can you do to get borrowers and agents to say, “I’m going to make sure I give you referrals for the amazing way you handled my transaction”? This is a fantastic way to build a referral-based business. As I was preparing to start my training company, I conducted a survey of real estate agents to find out what they wanted from lenders and how lenders could provide better service.

When asked what made him loyal, one Realtor I interviewed stated that his lender always makes sure the numbers at closing are the same or lower than the original good faith estimate. The agent knows his buyers will always be satisfied at closing, making the transaction end on a positive note. The lender will pay for unexpected fees rather than charge the borrower more than was expected. At the closing table, (where the originator is always present), the originator takes a copy of the original good faith estimate and makes a point to explain that the costs have come in at or below the estimate. Most consumers have either had an experience of being charged more than expected or know of someone who has, but then felt pressured to close because they could not delay the closing. This small act has created raving fans out of Real Estate Agents as well as borrowers, making this lender a consistent top producer.

Here are a few other ideas to help improve your customer service:

Being available. When I was an originator, I asked borrowers why they chose myself over another lender, as I wanted to know what I was doing right. Quite often, I was chosen because of my quick response to questions and needs. This included being available to meet clients on their schedule, responding quickly to phone messages and getting answers to questions as quickly as possible. By consistently doing these things with potential clients as well as borrowers already in your pipeline, you are reinforcing the message that they are important and their needs are a priority to you.

Many Realtors commented on the survey that they feel we avoid phone calls once we have the deal in the door. This may or may not be the case, but perception is reality to most people. Make sure you return calls promptly or try making regular status calls before the agent has a need to call you. If you are working on a problem and have not yet solved it, but know the agent is anxious, try making a call to say, “I wanted to let you know am still working on this problem and hope to have an answer to you by (time/date)”. You will be amazed at the amount of leverage this gives you with agents. You are showing respect to them and they will respect your need for more time.

Know your business. You don’t and can’t possibly know all there is to know in this business, yet remember that knowledge is power and your clients are relying on you to be the expert. This means you must become as knowledgeable as possible and continually work to educate yourself further.

Consumers want to work with a lender that makes them feel safe and confident with their financing decisions. By giving reasonable choices of products and the information to help them make a decision, you are placing yourself in a position as a trusted advisor. There will be less rate and fee shopping because you have become a valuable asset to them. If you do not know the answers to questions, explain that your support team is a wealth of information and you will get back with them as soon as possible with the answer. Utilizing your processor, underwriter or account reps, find the answer and immediately report back to your client.

Schedule time each week for your education. This can include such things as investor announcements, program guidelines, trade magazines or training sessions with underwriters or account reps. One to two hours a week will keep you up to date on loan changes and program details. Spend time learning mortgage loan products as well as marketing strategies that will help your business.


Most important client. The more you are able to treat each agent and borrower in such a way that they perceive themselves as your most important client, the more referrals you will receive. You are being given the opportunity to help with one of the most important financial decisions they will make and if this is a rewarding experience for each borrower, they will want to reciprocate your efforts with referrals.
Get your team on board with this concept. Introduce processors to clients. Rather than just names and numbers on an application, staff will now feel a connection with each client. They will naturally work harder to make sure the client’s transaction is as smooth as possible. Have your processor e-mail the appraisal or other updates to clients as they are received, which will also reduce phone calls to you for status.

Go the extra mile so the process is a pleasant, rewarding experience. By making sure your office is a professional place to meet, you are creating a feeling of security for clients. This also applies to you as the professional. Sloppy and casual do not spell success and borrowers are looking for someone successful to trust with this important step in their lives

Do everything in your power to be available at the appointment time. No one likes to wait. It doesn’t just make you look busy (which some loan officers interpret as successful), it makes you seem inconsiderate of your clients time. It is also a great idea to have items to entertain young children and cold drinks for clients.

The closing table is another place to demonstrate the importance of your client. Be there. Amazingly enough, many loan officers are still not going to their closings. This is the time to smooth over any difficulties that have happened during the process and reinforce your referral based business. Give a small closing gift (plant, candle or address stamp), as this will state your gratitude for the opportunity to help with their transaction. Be sure to give a couple of your business cards, stating “I enjoyed helping you with your loan and would appreciate it if you would give my card to anyone you know that is looking for a mortgage”. Reinforcing the fact that you work on referrals is a step many loan officers forget to take.

Remember, there is very little traffic in the extra mile. As the mortgage business has tried to become more and more service oriented, it takes higher levels of creativity to keep ahead with new and innovative ideas.

Strategies to increase realtor referrals
Strategies to Increase Realtor Referrals
By: Bliss Sawyer


Consistent referrals from Realtors can be the lifeline of your business and one of the most reliable ways to increase production. By utilizing the following two tactics; Servicing the Listing Agent and becoming a Second Opinion Lender, you place yourself in a position to develop strong, high referral relationships.

Let’s first take a look at Servicing the Listing Agent. It is amazing to me that so many lenders don’t even make a call to the listing agent unless the transaction absolutely requires one to move ahead. Big mistake! Even if the listing agent is already tied in with a lender, you never know what might happen in the future. Let me tell you a brief story…
At one point in my origination career, I moved to a new area just when rates where climbing. Looking for every way I could to develop new Realtor contacts, I tried this approach. The agent was a high-producing Realtor and at the end of the transaction, I asked if we could meet for lunch to discuss doing more business together. He said he was grateful for the great service I had provided, but had a lender that had been with him for many years. I finished the conversation by letting him know I would love to work with him anytime in the future. I contacted him by fax and phone for the next six months hoping to work with him again. One day, he called and explained that his current lender was not performing well and asked if I would like to be his preferred lender. This was the start of a fantastic relationship.
To set yourself apart, you can utilize a few new tactics when you have the opportunity to work with a listing agent that does not currently give you referrals.
Phone calls - even though everything is going well. You aren’t releasing any personal information, just letting them know you are on top of things. Let them know you have the file and that everything looks great for their agreed upon closing date.
Then call when the appraisal is in to let them know if there were any repairs. Give a courtesy call when the inspection and/or survey is done. Many Realtors have had deals go past the closing date simply because these items were not completed on time. By making this call, you are letting they know that you are conscientious of the contract dates and their need to close.
You can even offer to set up a closing time with the seller and ask if there is anything else you can do to help with the transaction. There rarely is, but you are letting them know you are available to assist and that your goal is to help make their job easier.
Faxes and e-mail - utilize this great technology to brand you as the lender that gets the job done. At set up, send a fax or e-mail with all of your contact information along with your processors. It is also a great idea to send over the approval on buyers (again, no personal info – just buyers name and property address). Even if they received this at the time the offer was presented, they most likely did not receive it from you. This gives you the opportunity to recognize their part in the transaction and express your willingness to help.
Closing gives you another occasion to sell yourself. Take a minute to stop by the sellers closing to meet everyone and thank them for a great transaction. Let the agent and seller know you would love to work with them again. This is especially powerful if the seller’s lender does not attend the closing on their new transaction.
After closing invite the agent to lunch to discuss helping his business grow. I would also suggest you add the agent to your call list, fax list, e-mail list or visit list. Basically, this means stay in touch some way. It may take six months, but can be well worth the effort.
The second marketing strategy I’d like to discuss is becoming a Second Opinion Lender. A simple, yet effective way to place yourself in front of more borrowers.
How many times has an agent said to you, "I'm trying to give you referrals, but all my buyers already have a lender?" This is very common, so becoming a second opinion lender allows you to still come in contact with their buyers.
Explain to agents that your goal is to help their clients get the best mortgage possible. Offer to review their buyer's current Good Faith Estimates and give them one to compare so they can make sure they are getting the best deal for their situation. You are helping the borrowers to feel comfortable with their lending choice. Borrowers may be surprised at the difference in fees and interest rates. If your rates and/or fees are lower, tell them you would love to do their mortgage, but they can also use your information to negotiate with their current lender. This is a soft-sell situation and you do not want anyone to feel unnecessary stress or pressure.
I have had borrowers close with the original lender, but come back to me for future refinances and referrals of friends and family all because I was willing to give them a second opinion.
Working successfully with real estate agents is the result of developing a trust-based relationship. This takes time and consistency on your part. If you talk to a listing agent once or offer to be a second opinion lender just a few times, you probably won’t reap the rewards of increased referrals and production. But if you utilize the above tactics time after time, you will develop a highly successful affiliation with many of the Realtors you would like to see give you steady streams of referrals.
Reprinted with permission from the scotsmanguide

Anatomy of a good commercial loan
Anatomy of a good commercial loan
By Christopher Perez
Copyright ¿2005


In simple terms if you follow “CIC” or credit, income & collateral, when sourcing for commercial loan candidates you can’t go wrong. This very basic information allows you to qualify the good from the bad & can be gathered in 2 minutes time. This will prevent you from wasting valuable time with deals that will never fund.

First is credit or FICO score. FICO scores range from 900 being perfect to 400 being the worst. Most lenders use a three credit score report called a tri-merge to determine a borrower’s credit grade. The three major credit reporting agencies are TransUnion, Experian, & Equifax. Typically lenders will look at the middle FICO score to grade a loan. FICO determines a yes or no, loan to value “LTV”, loan terms available, & interest rate. Even a couple points difference in credit score can change a deal dramatically. Here is what a typical grading system may look like.

• A+ 700 or above – Pristine credit, the best of the best, the most competitive rates, LTV’s as high as 90%, with 30 year terms available.
• A 680 to 700 – Very solid, good rates, LTV’s still 80-90%, with 30 year terms available
• A- 640 to 680 – Not bad, rates fair, LTV’s 70-80%, terms can reduce to 20-25 years
• B 600 to 640 – Questionable, credit is now analyzed very carefully, mortgage history vital, B credit rates, LTV’s 60-70%, terms can be reduced to 15 years
• C 600 & below – Typically unbankable, double digit rates common, under 60% LTV’s offered, terms can be as little as 12-36 months

Be careful when grading a deal according to credit. Sometimes anomalies can occur. For example a borrower could have a 700 mid FICO, but also have a 2x late on their mortgage history. Even though this borrower meets the lenders rate guidelines the mortgage lates will affect an underwriter’s decision significantly.

Second is the income analysis. Income can be the property income & or the borrowers personal income. Most lenders look at both. The ability to pay the loan payment with some cash in reserve is what lenders are looking for. A good rule of thumb is 1.2 “DSCR” or debt service coverage ratios for multifamily properties & above a 1.25 for all other property types. When a property such as multifamily has a strong rental income personal income becomes much less important. For owner occupied properties, such as an auto repair shop, personal income now becomes a deciding factor in approving the loan because the property itself doesn’t generate income the business does. “DTI” or debt to income ratio is also analyzed. This is the borrower’s debt as it is compared to their income. A general rule for lenders would be 55% DTI, and 80% DTI if owner occupied. An adjustment for assets would make it 45% for investor properties and 65% for owner occupied properties. This means that before adjustment for liquidity, the DTI could be 60% and 80%, respectively.

There are commercial programs similar to “No Doc” in the residential world called stated income stated asset that do not look at personal income. If you are purchasing an apartment building and you are showing losses on your personal tax returns, a stated income-stated asset loan would be for you. However, the properties income is still disclosed in the appraisal and it must debt service in order for the loan to work. Since the loan is stated, lenders are a bit more lenient and will allow the loan to fund even at .8 DSCR. This means that on paper the property is at a 20% loss annually. Why would somebody buy such a property? Because they truly believe the property was mismanaged and they will raise the rents, reduce expenses and the property will be cash flowing beautifully. Stated income stated asset loans are based on good credit scores and solid property types,. Rates will be higher & LTV’s will be lower on stated deals. There are an extremely limited number of good stated lenders in the industry.

Lastly you have the collateral or property types. Property type, similar to credit score will determine LTV, rates, & terms available. The best & most desired property types by lenders are the vanilla ones i.e. multifamily, retail, office. The converse would be the special purpose or single use properties i.e. car wash, hotel/motel, industrial, restaurants. Restaurants rate right up there with nuclear power plants due to the high failure rates. Common property type tiers, tier 1 being the best to tier 4 the worst are as follows:

I. Multifamily, mixed-use
II. Retail, office, warehouse, self storage
III. Rooming house, B & B, campground, car wash
IV. Restaurant, hotel/motel, day care, funeral home

Keep in mind each lender has their niche. Some love mobile home parks, while others love auto repair, & some like neither. Find your lenders sweet spot.

Again the “CIC” credit, income, & collateral rule of thumb can expedite your qualification process thus saving you valuable time. Good time management leads to a healthy bottom line.

Christopher Perez now works with over 1100 brokers on a daily basis.

Christopher Perez is the director of Commercial Loan Consultants, a national commercial-loan-placement firm. He advises more than 700 residential brokers nationwide. In addition, he provides a comprehensive training program for residential brokers looking to branch out into commercial-loan origination. Contact him at (877) 473-6984, e-mail [email protected] or visit www.clcloans.net.

Top Ten Mistakes in Commercial Brokering
Top Ten Mistakes in Commercial Brokering
By Christopher Perez
Copyright ©2005


10. Not knowing your lenders. It is very important to do your homework when selecting wholesalers to work with. Make sure you get plenty of references including borrowers & other brokers. Do not take anything at face value. There are shops out there whose main source of income is from your borrower’s application & commitment fee. In addition many lenders promise the world then only disappoint in the end. The last thing in the world you want is for your borrower to shell out thousands of dollars for application, commitment, & appraisals fees for a deal that isn’t going to happen. It is your reputation on the line.

9. Pursuing the “white whale” In other words the $50 million dollar loan that comes with million dollar fees. Make no mistake they are definitely out there & can make any brokers year, but beware. Larger loans are very difficult, require an immense amount of time, have lots of moving parts, & much more savvy borrowers are involved. The competition from other lending sources will be fierce if it’s a real deal. Also you could spend a lot of wasted time on a deal that may never close though no fault of your own. Best way to know if a deal is worth spending time on is by asking the borrower how much cash he has in his account. If you have a borrower looking for a 50 million dollar construction loan and he has $50,000 in his bank account, the conversation should end there, unless he is currently selling one of his buildings for $10,000,000 to use as a down payment which is very rare.

8. Over promising & under delivering. You want the deal & when the call comes in you immediately say yes. Make sure the loan falls into your product line before telling the borrower you can do it. It is very difficult to say try your bank first or this isn’t something I can do. Don’t ever just say yes then think I’ll just grab the Scotsman Guide to figure it out. You’re in for a fall if you do business this way. Keep in mind that it is nearly impossible to find money for a purchase of a commercial property for a borrower with a credit score below 575. As a matter of fact, when the credit score is below 680, you are looking at lower LTV’s and higher interest rates which can also hurt the deal. It is very important to let the borrower know everything up front so you don’t waste your time and have the deal die at the end.

7. Mispricing. Many brokers will have a set number of points they charge on any given loan. This does not work for commercial. 1 or 2 points for a good credit borrower with a sound deal should not be priced the same as a borrower with lower credit and no income. Price each deal accordingly. Charge 1 to 2 points for the traditional bank deals. 2-5 points are the norm on the tough ones that do not have banks as an option. If you are looking at purchases in the millions (Jumbo Loans), you can compete with other brokers and lenders by not charging in the front and making everything in the back.






6. Misquoting. When initially discussing a loan scenario with your wholesaler do not quote the approximate rate to the borrower. There are many questions that will only be answered when the lender has the full package in hand. For example a borrower can have a 700 FICO score with 2 X 30 on their mortgage. Or a borrower can gross a large amount of money, but show losses on tax returns. Your initial call with the lender should solely be to find out if the lender has an interest in your deal then how to submit. Any good lender can issue a pre-approval in a couple of days. Wait till you have an offer in writing before discussing rate & terms with your borrower. Also make sure your borrower has a good expectation of when they can close. A lot of purchase deals require a close by a set date. Don’t set your borrower up for penalties or even losing deposit money. Ask your lender their average to close on the type of loan you are submitting. You should always quote them worst case scenario to your borrowers so they are prepared for the possibility of something going wrong like title, appraisal, some property verifications, etc.. they can all take extra time and settlement date nay have to be postponed.

5. Taking on the “cause” loan. This is the loan where you have a borrower with a good story. It may even be a friend of the family. You want to help them because they don’t fit into the normal programs available. Again watch out. Even with a story many lenders have very strict guidelines of what they can & can’t do. A good story i.e. divorce, sickness, etc. may be a justifiable circumstance, but federal & banking guidelines are rigid with expectations few and far between. It is often difficult to say no to a “cause” loan. Unfortunately you may give your borrower a false expectation, waste a lot of time on something that doesn’t have a chance, or put this borrower in a worse predicament.

4. The business plan loan. This is a lot like the cause loan. Someone has a great idea or business plan. They are ready to set the world on fire. Unfortunately an idea without sound financials, money to play, etc. 99% of the time usually doesn’t fly. Venture capital money is very difficult to acquire. The capital on most business plan loans that come to fruition is raised from family & friends, credit lines, credit cards, and your good old fashion local banker.

3. Not knowing when to let go. If a deal dies with a lender it probably had good cause. If the appraisal came in lower than expected than so be it. The same will hold true with the other lenders out there. It’s always ok to question or try a second opinion. Keep in mind the lender is in business to make loans so if they kill your loan it probably wasn’t a solid deal to begin with.

2. Not knowing your borrower or loan. Make absolutely sure you have a handle on your borrower & the loan before ever submitting to your wholesaler. Time is money so don’t waste it. You will lose credibility with your lenders if you consistently submit junk. This will effect their response time & could even affect pricing. Know the borrowers credit, the property type, the financials, the cash flow, etc. Always keep in mind, “CIC”, credit, income, collateral. Make sure you submit what the lender is requesting, nothing more & nothing less. There is nothing worse than a wholesaler getting a 50 page fax of non-sense. Your wholesale rep has 50 their loans on their desk. You must make it easy for them to get your loan into underwriting for a fast turnaround time on an approval.

1. The number one mistake in commercial brokering is trying to be everything to everyone. Pick a niche. Stick to it! There are many loan scenarios out there, from SBA to construction to stated income stated asset. By sticking to a particular niche you will become an expert in that field plus limit your number of lenders. You will become important to your wholesalers with more deals & closings. This leads to better pricing, perks & higher commissions.


Christopher Perez is the director of Commercial Loan Consultants, a national commercial-loan-placement firm. He advises more than 700 residential brokers nationwide. In addition, he provides a comprehensive training program for residential brokers looking to branch out into commercial-loan origination. Contact him at (877) 473-6984, e-mail [email protected] or visit www.clcloans.net.

Good Manners Count
Good Manners Count
By Christopher Perez
Copyright ?2005


If you are serious about making a splash in the commercial finance world it is vital that you read and absorb this article. It is obvious that your reputation with your borrowers is of utmost importance, but what is sometimes lost on brokers is that your relationship with your lenders is every bit as important if not more so. Please take this to heart, good manners count. There are over 30,000+ brokers out there, but believe it or not the commercial wholesale world is quite small. Every major player knows every other major player. They mix worlds at times. They sit side by side at tradeshows. They buy one another or merge at times. They even refer deals & brokers. The converse hold true as well. They also discuss the bad brokers out there. If you make a negative name for yourself with just one wholesale company you may be significantly impacting your shelf life across the industry. This article is designed to help you avoid the pitfalls of the unsuccessful commercial broker.

First is the sloppy submission. The refi boom is becoming a distant memory so many brokers are crossing over into commercial which is very logical. This means that commercial wholesalers are having their very own industry boom. Deals are coming in fast & furious. The ones that get attention and are qualified quickly are the ones that are prepared and submitted the proper way. Handwritten 1003’s are a no-no. They go a long way to put you in the category of the unprepared broker. Most lenders will not even accept them. Now when you resubmit the second time your file will go to the bottom of a very large pile.

Submitting incomplete information. If a lender says you need to submit a 1003, tri-merge, and rent roll submit: 1003, tri-merge and rent roll not just the 1003 & tri-merge. 1003’s are your one opportunity to paint a picture of your borrowers for the lenders. This means the more information and assets listed the more favorable decision you will receive. This is important not only for full document loans but for stated as well. Stated does not mean no information needed. Submitting a barren 1003 will only get the file sent back to you. Now when you have to submit your file again it is now under the microscope of the underwriter the second time around. Get it right once. Ask your account executive or AE if you need guidance on what is desirable.

Submitting information that is not requested is just as bad as submitting not enough information. If a lender tells you to send 1003, tri-merge credit, & rent roll, you send: 1003, tri-merge, & rent roll. You may think you are being helpful by sending in a complete file which may include tax returns, purchase agreement, leases, appraisals, etc., but all you are doing is bogging down your AE. In fact some of this information needs to go to separate departments at separate times in the loan cycle. What is even worse is that it may go to the underwriter with excess information. The underwriter has the ultimate say on whether your deal is a go or a no go. They do not like doing unnecessary paperwork. If you make them have to disseminate through a bunch of information that is not needed in the beginning for a prequal you can be assured if the deal is a go they will punish you with stips down the road. Once you are on an underwriter’s bad side your files get special attention & not the kind you want if you want to close deals.

Sending dated information. If you have an old file that came back to life update the information. Re-pull credit, get current tax returns, or an up to date P & L.. You will save time in the long run.

Deal blasting. This is when a broker faxes or e-mails out the same deal to multiple lenders. It is ok to shop for the best deal for your borrower, but you want to be very upfront with your lenders that you are doing so. If they see the deal is going to multiple sources you may not get back a serious offer & the turnaround time is going to be very slow on your files. In addition some lenders will re-pull credit. If credit is pulled too many times it will adversely affect the chance of your borrower getting a loan. Also nobody wants an unsolicited fax of 50 or even 100 pages so call your AE first to discuss the deal. After a 1 minute conversation you may find out you do not have a deal at all. I have personally seen 50 page faxes go right into the shredder because no one was expecting the deal. Wholesalers have many employees so you always want to speak with someone before sending. Deal blasting shows that a broker does not know his wholesalers or their programs well. If you don’t know the programs it could mean you don’t know how to put together files which could in turn mean you don’t know your borrowers.

Submitting unrealistic or garbage deals. Let me dispel the myth right now, 100% financing in commercial doesn’t exist. There are unique circumstances when you can get close or create a scenario where it ends up being 100% but it is a rarity. Borrowers with sub 600 FICO scores will not get good rates, ever. Bad credit borrowers can not purchase property unless they are putting up a ton of money to the tune of 50% or more. You must have fair credit with down money to purchase commercial property, period. Someone looking for 100 million dollars with no equity or down money lives in a dream land where elves exist. No phone no loan. Always ask yourself would you personally put up your own money on your borrower. If you consistently send bad deals to lenders you will lose credibility plus no one will want to work with you.

Having unrealistic expectations of your lenders. If the lender says approval in 48-72 hrs do not call 5 times the day after submission to check on the file. Some lenders evaluate as many as 50 deals per day so you have to get in line. Be patient. If you have a rush deal let your AE know in advance, but do not be a bull about it. If the borrower is bullying you, you must not let that carry over to your lender. It will affect your deal. If the lender says close 30-60 days, expect 60. Do not over promise your borrowers with unrealistic turnaround times or offers. If you under promise and over deliver you will go far, increase your referrals, close more deals, and have happier borrowers.

Just plain old being rude or arrogant. You would think that this simple rule would be universally understood, but for some insane reason it isn’t. This is vital for you as a broker to understand. Your lender does not have to work with you or accept your deals. This is so important I must say it again, your lender does not have to work with you or accept your deals. Being the CEO & president of your firm, driving a Porsche, and like are great accomplishments, but better left to the locker room or golf course. You lenders are there to get your borrowers the best wholesale deals available & hopefully in the process make you lot’s of money. If you are arrogant or rude you will then be instantly sent up the food chain to a senior person. This is not because you are getting VIP status. It is because you are being carefully evaluated. If you are continually disruptive to the wholesalers business they will black list you. This means you can no longer submit deals to them. What is worse is that some wholesalers have the same parent companies & sister companies. You will be banned from all of them. I know of a situation where a broker called and left a message for a lender. The lender rep called back & was immediate place on hold. The rep was extremely busy so left a message and took the next call. The broker called back 25 minutes later to speak with the loan administrator of the company. She said she wanted to be removed from any & all solicitations plus taken off of the approved list because the rep didn’t wait on hold. The administrator was amazed at this request because this was typically only done by the lender in the case of fraud or some extraordinary circumstance. The administrator obliged at the brokers request. The broker in effect banned themselves from doing business with 15 companies. How much money that cost the broker in the long run is immeasurable. This was a case of arrogance costing a broker a lot of money. Being rude & belligerent is also completely unacceptable no matter the reason. Everyone has off days, especially when deals go south, so you may want to lash out. Do not let emotions impact your income. The good news is that lenders want to help you & your borrowers. They want your business. If you are courteous, even friendly, you can build some long term relationships that will be emotionally as well as financially rewarding which is exactly what this business should be about.

Christopher Perez advises over 1500 brokers on a daily basis.
Christopher Perez is the director of Commercial Loan Consultants, a national commercial-loan-placement firm. He advises more than 700 residential brokers nationwide. In addition, he provides a comprehensive training program for residential brokers looking to branch out into commercial-loan origination. Contact him at (877) 473-6984, e-mail [email protected] or visit www.clcloans.net.

What are my wholesalers looking for?
“What are my wholesalers looking for?”
By Christopher Perez
Copyright ©2005


You have finally decided to add commercial loans to your product line. You’ve done your home work & have a select group of lenders to work with. Now what type of deals should you be looking for & what type of deals do the lenders want to see? Every lender is particular about the type of deals they want so let’s begin with the three basic types of loans that exist: Full document, stated, & hard money.

First, full document is your bank type product. The borrowers have good credit, plenty of down money if it is a purchase & the property they are buying / refinancing is more or less vanilla, i.e. retail, office building, multifamily. There is a fair amount of competition on these types of loans & pricing is very competitive in the market place. Rates are better & LTV’s higher. Reason being these are the deals that banks & wholesalers want to finance. Why? The answer is quite simple, risk. The chance of default is much less with a clean property, plus the lender can liquidate a property quickly (in a worst case scenario) where the borrower defaults. Bank type loans though require bank type paperwork. Full doc lenders will typically want to see the following: Lender specific application, 1003, tri-merge credit, profit-loss statement with rent rolls, if it’s an income producing investment property, & two to three years of tax returns, personal & corporate. The lender can then make a determination based on credit, income & collateral. Most lenders want to see a 1.2 to 1.35 debt service ratio or “DSR”. That means that the property’s income must be able to service the mortgage payments and have at least 20% profit left over. . The “DTI” debt to income ratio should be at 55% or less & in the case of owner occupied as high as 85%. Some full document loans like SBA will even consider the business value, equipment of the business, in addition to the property value. Properties that are unique; restaurants, auto repair, marinas, single purpose properties will typically not fly as full document. Keep in mind when considering a full document loan for a client that they have a lot of options out there in the market place. Lot’s of options means lower fees for you as a broker & the more likelihood you will be shopped around. The turnaround time on these loans to close is 60-90days. You can expect to make 1-2 points on full document loans, depending on loan amount.

Next are stated income stated asset loans. These loans are for the borrowers that may show losses on their tax returns or are in an all cash business. Stated lenders, the very few that exist, have much more flexibility with their underwriting. What the stated lender is looking for is a strong borrower & a solid property. Personal income is far less important. A common misconception with brokers is that the stated lender is looking for sub-prime borrowers. That is absolutely not the case. Most stated loans have very strong credit borrowers. They are the owner operators out there that have been in business for many years that take the deductions year after year that the IRS allows. For the most part stated lenders will consider the more unique property types as well. The risk involved with these loans on Wall Street is much greater so they are offset by much higher rates & shorter terms. The stated lender will typically want to see: Lender specific application, 1003, tri-merge credit, & rent roll. The key to approvals on these loans is page two of the 1003, the assets page. Make sure you load up the assets page with stocks, bonds, securities, inventory, equipment, personal property, etc. Your job is to make the underwriter comfortable with the borrower / deal. The assets page goes a long way to solidify or kill your loan. Keep in mind that with multifamily, the stated lender will still want a strong performing property. There are very few good stated income stated asset lenders in the US & almost none that a borrower can go to direct. This means much higher fees that can & should be collected on these loans & the ability to shop is nil. Start to finish these loans close in 30-45 days. Your fees should be in the 2-5 pt range for stated.

The third major loan type is hard money. Hard money speaks for itself. It is the hardest money on earth. Rates can be in the double digits, terms from 1-3 years, over collateralization is common place, & LTV’s usually max out at 65%. The funds are from private investors and or groups. There are two borrowers for this type of financing. First is the borrower who is in trouble because of bad credit. The borrower has super strong financials, strong assets, and a great executive summary but cant get a bank loan because of his low credit scores. There are a few simple questions to ask when pre qualifying a hard money loan: How much do you want? How Much do you have (cash/assets)? How much do you make? And how do you plan to pay me back? If the borrower does not have a strong answer for all the questions, then the deal is dead due to evidence of the inability to service debt. ..”Private lenders do not require a minimum credit score to close a loan, unlike banks and conventional lenders where you typically need at least a 600 score for them to even look at a deal”. The private lender is typically looking for a reasonable credit explanation if the credit score is low. The private lender also wants to make sure a quick liquidation for profit is possible at a fire sale.(this Is actually how they determine the value of the property, if the sheriff sale value is 300k the appraised value is around 475-525k (depending on property and location) but the LTV is based on Sheriff sale value when getting a bridge loan The second type of borrower for hard money is the institutional investor or the savvy entrepreneur. This is the borrower that finds an investment opportunity & needs money lighting fast to make it happen. This borrower doesn’t care about rates, fees or terms. They are in it for the short term to churn their cash & make a quick profit. 100k fee to a borrower making $5 million profit on a deal is irrelevant due to such a high return on their investment. The hard money lender will typically want to see: lender specific application, executive loan summary, market opinion letter on the value of the property from at least 2 local realtors, and all financials relevant to the deal. Hard money loans can close at warp speed from 7-14 days. 5+ points for hard money is standard, but do not gouge. There are no predatory lending laws for commercial and as long as brokers do not overprice there never will be.

Christopher Perez is the director of Commercial Loan Consultants, a national commercial-loan-placement firm. He advises more than 700 residential brokers nationwide. In addition, he provides a comprehensive training program for residential brokers looking to branch out into commercial-loan origination. Contact him at (877) 473-6984, e-mail [email protected] or visit www.clcloans.net.