Commercial Loan Modification USA » commercial loan modification

Commercial Loan Modification — Frequent Objections

admin — Wed, 24 Mar 2010 18:45:02 +0000

Because the commercial loan modification industry is so new we have noticed that many people who are considering using our services present us with similar reservations. We have tried to answer some of these points below. If you have any questions about your particular situation, please respond to this email or simply call me at my office.

“My attorney can handle this.”

Many attorneys who are now advertising themselves as commercial loan modification specialists have no real experience performing commercial loan workouts. Currently in the U.S. there are more attorneys working in the legal profession than there is work to support them all. This has forced many attorneys to become generalists who try to capitalize on the latest trends such as car accidents, home loan modifications and even commercial loan modifications. Commercial loan modifications require an in depth knowledge of the mortgage financial markets along with an understanding of what banks are looking for in a commercial loan modification proposal. Our commercial loan modification proposals are over 50 pages long and take our staff of commercial real estate analysts over 40 hours to prepare.

“I am going to try to modify my commercial loan on my own”

We encourage every commercial property owner to first try and modify their commercial loan themselves by contacting the bank directly. This is certainly the most affordable solution. Unfortunately, commercial property owners are having little success using this approach. Banks are looking at borrowers who attempt a modification on their own with a jaundiced eye. The banks are assuming that the property owner is trying to take advantage of the overall economic decline in the U.S. and the poor performance in the commercial real estate sector to lock in a better interest rate and a higher net operating income. Banks are more inclined to consider a modification proposal that comes from a disinterested third party of commercial real estate experts who have a long track record in the industry with years of success.

“I am going to wait and see what happens.”

Regardless of what decision an owner makes concerning his or her distressed commercial property, the sooner a decision is made the better the outcome tends to be. Ignoring the bank or lender will only create more animosity and distrust in the relationship while possibly hampering any future efforts to reach a mutually beneficial loan modification. Even if a property owner is unable to make full mortgage payments to the lender on a monthly basis there are specific steps that can be taken to show good will towards the lender that might help your case in the future.

“The fees are too high.”

For the majority people who own a commercial property in financial distress the commercial loan modification solution is the most affordable option. Most commercial properties will not qualify for a new loan or refinancing under the new, tighter underwriting guidelines imposed by banks and lending institutions. Even for the property owner who is fortunate enough to qualify for refinancing this option can actually be more costly if environmental, appraisal and bank fees are taken into account. Furthermore, most commercial properties are purchased using full recourse loans. Many owners who are facing foreclosure risk losing their entire life savings and the prospect of personal bankruptcy if the lender enforces a deficiency judgment. When compared with the cost of bankruptcy and financial ruin the fees involved in a commercial loan modification are truly the most affordable option for most commercial property owners.

Sincerely,

Chris Dodd Urges Commercial Loan Modifications. Will Bernanke and Banks Listen?

admin — Wed, 24 Feb 2010 23:34:22 +0000

Chris Dodd Demands Commercial Loan Modifications

Below is a letter written by Chris Dodd the top Democrat on the Senate Banking Committee to Ben Bernanke asking him to recommend that banks begin to modify more commercial loans. Will they listen?

February 22, 2010
Ben S. Bernanke
Chairman
Board of the Governors of the Federal Reserve System
20th Street and Constitution Avenue, NW
Washington, DC 20551

Dear Chairman Bernanke:

I write to express my concern about the state of the commercial real estate (CRE) market and the potential impact on the financial system and the greater economy.

Recent reports and testimony indicate that while the economy is showing signs of stabilizing, the CRE market continues to face significant challenges. The Congressional Research Service, for example, reported last month that commercial mortgage defaults and losses are at unusually high and increasing levels. According to the report, delinquency rates for commercial mortgages climbed from 4% at the end of the third quarter of 2009 to more than 6% in January 2010.

I understand that you have been raising concerns about the CRE market as well. Indeed, in a speech before the Economic Club of New York in November 2009, you stated that “poor fundamentals have caused a sharp deterioration in the credit quality of CRE loans” and that these “pressures may be particularly acute at smaller regional and community banks.”

Others also have expressed concerns. At a hearing last month before the Congressional Oversight Panel (COP), a Federal Reserve official testified that “Federal Reserve examiners are reporting a sharp deterioration in the credit performance of [CRE] loans in banks’ portfolios and loans in commercial mortgage-backed securities,” and warned that more than $500 billion of CRE loans will mature each year over the next few years. This point was reinforced in an oversight report published by the COP this month, which stated that nearly half of CRE loans at present are “underwater” and that the largest “loan losses are projected for 2011 and beyond.”

In response to the growing concerns, I understand that last October the Federal Reserve and other agencies on the Federal Financial Institutions Examination Council released a policy statement on prudent commercial real estate loan workouts to “assist examiners in evaluating institutions’ efforts to renew or restructure loans to creditworthy CRE borrowers.” I appreciate your efforts to coordinate action in addressing this critical issue and ask that you keep me informed as to your progress. While it may still be relatively early in the process, I would like you to provide an update on how this guidance is helping to stabilize the CRE market. In addition, I would like an explanation of how the Federal Reserve has addressed the CRE issue so far, and what additional steps you plan to take.

I believe that the weakness in the CRE market requires prompt and robust responses from the regulators to guard against harmful effects on financial institutions and the economy. I urge you to redouble your efforts to provide appropriate oversight of this vital component of our economy, and look forward to working with you to bring much needed stability to the CRE market.

Sincerely,

CHRIS DODD
Chairman

Congressional Oversight Plan and Commercial Loan Modifications

admin — Thu, 18 Feb 2010 15:24:23 +0000

The Congressional Oversight Panel released their February report entitled “Commercial Real Estate Losses and the Risk to Financial Stability” on February 10th. The 189 page report can be viewed in its entirety here: www.scribd.com/doc/27008229/Commercial-Real-Estate-Losses-and-the-Risk-to-Financial-Stability. Typical of government reports of its kind the authors are long on explanations, coupled with impressive analysis, but short on solutions.

At least the report does make one thing clear, they are worried. In fact the opening paragraph follows verbatim: “The Congressional Oversight Panel is deeply concerned that commercial loan losses could jeopardize the stability of many banks, particularly the nation‘s mid-size and smaller banks, and that as the damage spreads beyond individual banks that it will contribute to prolonged weakness throughout the economy.”

This is hardly breaking news. Journalists, economists, and real estate analysts have been watching and waiting for the collapse of the commercial real estate market and its aftermath for the past three years.

So what is the government plan for dealing with the commercial real estate meltdown? I have searched far and wide and I haven’t been able to find any clear cut or decisive plan that any government agency has created so far for dealing with the problem. Furthermore, if the results of previous programs that have been levied to prevent and slow the residential real estate foreclosure crisis such as The Home Affordable Mortgage Program, or HAMP, are any indication of the government’s ability to deal with the commercial real estate loan crisis than the U.S. economy could be if for real trouble.

HAMP began just over a year ago as a program designed to help homeowners modify their mortgages. The modifications were designed to lower the monthly payments that homeowners make on their mortgages in an effort to prevent foreclosures. The goal of HAMP was to create 3 to 4 million permanent home loan modifications. Instead, as of now HAMP has only created a mere 66,465 permanent modifications. In a recent report on the number of total foreclosures in the U.S for 2009, www.RealtyTrac.com showed a total of 3,957,643 foreclosure filings (default notices, scheduled foreclosure auctions and bank repossessions) on 2,824,674 U.S. properties in, a 21 percent increase in total properties affected from 2008 and a whopping 120 percent increase in total properties affected from 2007. To make matter even worse, a full 25% of homeowners are living in homes that are worth less than their mortgage balances. It really is only a matter of time before these people realize that it is better to walk away from their homes than to continue to pay on a liability that has a strong chance of decreasing in value even more. Based on these figures and circumstances it is clear that HAMP has so far been an ineffective program.

Banks are now reporting to Congress that they have failed to convert many temporary HAMP modifications into permanent modifications because the borrowers were not giving the banks the necessary paperwork they need to complete their files. In a familiar refrain, the banks are once again blaming the borrowers.

Sadly, one of the only solutions that the Congressional Oversight Panel suggests for dealing with the potential catastrophe of the commercial real estate market are more loan modifications. However, one is left to wonder, if the banks have failed to hire and train the necessary staff to successfully handle the influx of residential loan modifications under the HAMP program than how are they going to handle the larger and more complex task of modifying commercial loans? At least the government had a program in place to deal with the residential loan modifications. The plan now is to leave it up to the banks.

Commercial Loan Modifications for Apartment Building Owners

admin — Tue, 22 Sep 2009 18:15:51 +0000

Download the latest Commercial Loan Modification Webinar Here

As the residential real estate market has seen a massive level of mortgage delinquencies and foreclosures over the past twelve months the commercial real estate market so far has not seen the same kind of fallout. However, this could soon change. In fact, Apartment Finance Today dedicated an entire section of their industry magazine in July to what they title “The Gathering Storm” in commercial real estate.

There are quite a few factors that have contributed to the coming problems in commercial real estate and one of the main issues is the fact that many commercial real estate properties were purchased with loans that were backed by commercial mortgage backed securities (CMBS). These CMBS were underwritten with extremely aggressive terms, often offering as much as 90% financing with loan terms that only stretched for five years. Now, according to Apartment Finance Today, apartment building values have dropped as much as 30% and those loans are beginning to become due. “As apartment values continue to descend, the LTV ratio of existing debt gets skewed. A loan that was made at 75 percent LTV two years ago may now be at 85 percent LTV or higher,” said says Don King, head of national agency lending at Needham, Mass.-based CWCapital.

This situation has created a unique problem for both commercial real estate owners and the banks that hold the real estate notes. Many banks and lenders are now more willing to extend and modify the terms of these loans so that owners can afford to stay in the property.

According to Apartment Finance Today, banks are most eager to work with property owners who have reinvested money in their properties. Banks do not want to take ownership of commercial properties, especially in this market. But they are most willing to negotiate with owners who have shown that they have proven property management shills. They don’t want to float a property that has a lot of deferred maintenance. Deferred maintenance is a sign to banks that the owner might not be doing well financially.

One of the available options for apartment building owners to pursue is to refinance another property that has more equity and reinvest in those properties that are currently struggling. This is a route that many have taken; however, it is not an option for everyone. The investors who stand to lose most in the “Gathering Storm” are those that only own one or two properties. Thankfully, there are now companies that specialize in commercial loan modifications. For many, this might be the best option. Generally, these companies, such as American…. charge a small percentage of the total deal size and by law, they must offer a money back guarantee. This means that if the commercial loan modification is turned down by the bank then the apartment building owner doesn’t pay anything.