In a CMBS scenario, the lender sells the loan off to a pool that spreads the risk. Usually a bond is issued to create this pool, and investors who hold the bond are sharing the risk (check exact definition for yourself). The problem with this is that the originating bank has less at risk and is therefore less motivated to keep a mortgage from going into foreclosure. It creates an almost apathetic attitude.

To worsen things, the loan is typically serviced by a separate servicing organization. ORIX, CW Capital, LNR Partners, C3, are some of the larger servicers. These servicers have a definite conflict of interest when it comes to the fiduciary responsibility transferred by the bank. They are being paid to service the loan, so orchestrating short sales or short payoffs are difficult at best. They are paid to handle foreclosure proceedings, so they are quick to move in that direction. And they are paid to manage properties in REO, so if the properties don’t sell at auction (and 85% or more do not), they get paid to manage the property. Once a special servicer is assigned the banks typically allow them to make the decisions.

A specific example is a CMBS customer we are trying to help. He has an existing $4+ million mortgage with no personal guarantee. He hired us to handle a stipulated foreclosure because he doesn’t feel the property can succeed. In the eleventh hour, he had an offer from an investor to purchase the property of $500,000 over the appraised value. This is unheard of. At auction, the bank will be lucky to net 50% of the appraised (regardless of what the servicer projects). The bids are generally too low, so the property ends up in REO. With too many REO properties, the property is sold at a huge discount (supply/demand). The banks and servicers would have you believe that they will get over 80% out of the property. But we are seeing prices as low as 30% of appraised. The FDIC does not publish the final auction price statistics for obvious reasons.

We have other specific examples of how the government and banks have created this “rush” to foreclosure. One other case involves a loan (non CMBS) that was originated by Washington Mutual. In Jan. 2009, those loans were taken over by J.P. Morgan Chase Bank. The FDIC guaranteed 80% of the balance (for 3 years we believe). What this means is that if a property goes into foreclosure and sells for 20% of its original balance, the FDIC will make up 60%. That means the bank has no reason to accept an offer of short sale or short payoff less than 80% of the existing balance. In most cases, this will exceed the appraised value. The case we are discussing has a balance of $2.25 million. 80% is $1.8 million and the bank will not accept a penny less. We have a BPO of $1.3 million. Which means the customer could borrow about $975,000. This will be going to foreclosure. The FDIC will ultimately pick up the tab, which means we are paying for it.

In the above scenarios, the banks stand to reap the rewards of performing loans, fees, etc., but have mitigated their risk through the assistance of our government and its regulatory bodies. And we wonder why we have a massive foreclosure issue.

It would be in the best interest of the majority to avoid foreclosure whenever possible. Our government has almost insured that this can’t happen.

Technorati Tags: CMBS, FDIC

Technorati Tags: CMBS

VIA CNBC

Technorati Tags: Capri Capital Partners, CNBC, commercial real estate, Quintin Primo

Conference rooms, storage areas, and cubicles in commercial office buildings are vacant. This is a nationwide trend according to Fortune. Office vacancy rates have risen 5% across the board in every industry (except government buildings). Layoffs and stagnant hiring in the this economy have turned many offices into “ghost towns. Less than one-third (30%) of the employers surveyed expect to need more office space in the years ahead.

Technorati Tags: Commercial Discount Note, Commercial Modification, Commercial Refinancing, Commercial Renegotiation, Commercial Restructuring, Commercial workout

With the commercial real estate market about to go into a crisis that may actually even be worse than the one experienced by the housing sector, it is easy to figure out the reasons why the bank regulators have urged the lenders to enhance their efforts in finding ways to approve a commercial mortgage modification for their property owners on the brink of foreclosure. The Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and other financial regulators are worried that the stability of the financial institutions could easily crumble with the onset of the upcoming wave of defaults by commercial property borrowers. The property owners are experiencing difficult times as a result of the reduction in their cash flows, the decline in the values of their properties, and absorption periods for rental and sales that are too long.

The financial regulators are also aware that a large percentage of the distressed commercial borrowers are still capable of repaying the mortgage and that they are just unable to do so at the moment because of the economic situation. Therefore, if both lender and borrower can find a way to agree on a beneficial commercial mortgage modification, they are bound to benefit from this decision in the long run.

According to the bank regulators, there are different types of commercial mortgage modification deals, such as the offer of additional credit, the extension of the term of the mortgage, adjustments to the payment terms, and the renewal of some of the provisions. The regulators also pointed out that if the loan workout will bring down the classification of the mortgage, the bank examiners will not regard this as a black mark against the financial institution if the bank had followed the applicable standards in assessing the risks that would be inherent in the restructuring of the loan.

The bank regulators are concerned that if an agreement for a commercial mortgage modification could not be reached, then a foreclosure of the commercial property would be imminent and this could have detrimental effects on the bank, the borrower and the economy. Obviously, the borrower will no longer have the income-producing property and this in turn would reduce its positive contributions to the economy. The lender will also be negatively affected because it will just be stuck with an asset that is almost impossible to sell in a situation where the market is experiencing a glut in repossessed properties, aside from incurring the hefty costs of pursuing the foreclosure proceedings.

As for the borrower, it is usually prudent to get the services of a loss mitigation professional who can help in preparing the arguments that could be more effective in convincing the bank to approve a commercial mortgage modification. This professional will also conduct a forensic loan audit to find out if there are any indications that the lender had violated certain laws and regulations governing the rights of borrowers when it provided the loan in the first place. Violators of these laws and regulations face severe penalties, thus, offering the property owner with a potent tool for convincing the lender to approve an application for debt restructuring.

SOURCE

Technorati Tags: commercial loan audit, commercial loan mod

In the above video, Elizabeth Warren of the Congressional Oversight Panel discusses the reason and effect of the Commercial Real Estate Collapse on the economy. Many small and medium banks (community banks) are classified as having a risky concentration of commercial real estate loans. Plus they have already been weakened by the financial crisis.

This will contribute to a prolonged weakness in our economy. Apartments, office buildings, and malls owe their existence to commercial loans. Commercial mortgages are different than residential loans. They must apply for credit every few years. In today’s market many loans are turned down because of the loss in property value. Many loans that seemed solid now look like bad deals. Has triggered a HUGE amount defaults and foreclosures. $1.4 trillion of loans are up for refinancing between now and 2014.

Empty offices, hotels, and stores lead to job losses. Nearly 40% of all banks in America have NOT under gone the stress that the large national banks have. Modifying commercial loans can save properties, jobs and the national economy itself.

Technorati Tags: Congressional Oversight Panel, Elizabeth Warren, Financial Stability

DON’T CREATE ADVERSARIAL SITUATIONS WITH YOUR BANK
If you or someone you retain think that intimidation or coercion is the best tactic, think again. Banks face tough situations on a daily basis, and threat of lawsuits, potential foreclosures, bankruptcy, etc., are every day business for them. Your best tactic is to present a factual case that proposes a win/win scenario for the bank and yourself.

DON’T MAKE A DECISION ON PRICE
Whatever fees you pay to save your properties is nominal when compared to the value of those properties, or even when compared to the savings you will receive upon a successful negotiation. Hiring the lowest price service is only prudent if you are confident that they will get you your best potential results.

DON’T TRY AND HELP A NEGOTIATION IN PROCESS
Once you commit to having someone handle your case, don’t get involved in the negotiation process. Your emotional involvement is actually a detriment to the process. The lender will exploit any opportunity to improve their position.

Technorati Tags: NEGOTIATION

Commercial Loan Review has been doing commercial loan workouts longer than anyone in the business, and unlike most, this is our main business. Commercial Property Owners are facing severe cash flow issues. To most there isn’t any apparent solution. Refinancing is difficult because existing balances are too high; selling your property faces the same issue – and that assumes you can find a buyer in this economy.

CLR can help. We have successfully negotiated short payoffs & short sales, deferred payments, reduced interest, interest only payments, etc.. Our results have been nothing short of incredible. We have cases that have reduced principals by literally millions; cash flow and equity is now positive. Foreclosures have been stopped and properties have been saved.

We guarantee performance, and we therefore have to be selective in the cases we bring in for mitigation. In other words, we don’t take on cases unless we are extremely confident that we will win favorable and acceptable terms for the property owner.

Technorati Tags: short payoffs, short sales

In this video from Fox Business Channel, the panelists discuss the Commercial Real Estate Crisis. The anchor speaks with David Castillo of Further Lane Securities about the relative quietness of the market. Castillo believes this is “the calm before a coming storm” and the commercial real estate market at risk of crumbling imminently. There is tremendous pressure on property owners because the banks aren’t lending and properties being valued under the market.

Technorati Tags: Commercial Real Estate Crisis, Fox Business Channel, Further Lane Securities

Utilizing our years of experience, we present the a series of tips for the commercial property owner in default.

Many inexperienced people recommend holding off making payments in order to show the bank you are having difficulties. If making payments is not too much of a hardship, it is a good idea to maintain your account in good standing. This is certainly a sign of good faith in the face of a hardship. And keeping your credit score at high levels will be important if new funding is necessary. In most cases, it isn’t true that the bank will not consider a negotiation if you are not past due. If the bank refuses payment, do not use your funds for other reasons. It may be necessary to show good faith payment during the negotiation process.

Technorati Tags: commercial loan modification, commercial loan review, short payoff