Want your Loan Approved?

Far too many times as lenders we invest our valuable time, effort, and energy into a deal, only to have to later PASS on the file after uncovering suspect information about the borrower/property/deal in general. I ran across a great article recently that addresses this issue and wanted to post it for all consume. Though I can't take credit for penning it, I do agree with what's said wholeheartedly. It's applications reach across each and every program that we offer here at GMC and hopefully reading it will give you a better understanding and increased likelihood of closing your deals!

"Do you want your loan approved? There is something you can do now to enhance your chances. The mortgage industry has changed in the last few months. No kidding! The broker community has become a convenient scapegoat for all of the industry's ills. Loans were being approved per lender-provided guidelines, which, in turn, was a reflection of the secondary market's unrealistic expectation regarding infinite property appreciation. This translated into an unbridled rush for market share that ultimately lowered lending standards to a point where it seemed the dead, but not yet buried could qualify for a loan. Those days are over. The "no-brainer" programs are all but extinct, and even deals that should be easy, based on excellent borrower credentials, have become increasingly difficult. The guidelines keep changing, underwriting requirements are getting tougher and programs that existed at the time of the loan origination are disappearing mid-stream, often with no comparable program to replace them. Also gone, or going, are those that based their business purely on maximizing commissions while minimizing work. The surviving professionals will be the ones who stay current with changing guidelines, do their work thoroughly and, above all, take their responsibility to the borrower, as well as the lender, seriously. In the future, there are many things that we will need to do differently in order to succeed in the newly-emerging order within the industry. There is, however, one thing that can be done immediately, starting with your very next loan. Being given good loans to begin with will greatly increase your chances of getting clean, responsive commitments and help you close your loans more quickly.

Of course you want your loans approved!
Since you already spent the anticipated commission (at least mentally), you want the loan approval to come fast, without being conditioned to death. You do not want surprises. You invest serious time in your deals; so you also need and expect referrals from grateful clients to result from every loan you work on.

It is probably fair to say that the above describes just about every loan originator. Beyond this point, results begin to diverge for different cases and different originators. Some loans, even those that appeared easy at first, never seem to get off on the right footing. Others, however, sail right through and are cleared to close almost immediately without being subjected to condition purgatory.

Sure, some underwriters are not as experienced as others. Others may enjoy occasional power trips, becoming intoxicated with the ability to have mastery over another's destiny. However, these issues of incompetence and weaknesses in human nature are present in all professions and are something that we simply need to learn to live with, within reason. For the most part, the success of your borrowers' loans depends on how thorough your own work is and on your ability to communicate all of the relevant facts to the lender clearly.

Do your homework, earn your fee!
First and foremost, you are responsible for learning and knowing the requirements and relative benefits of the different mortgage programs. You meet with and collect all of the needed information from the client. You match the client's needs and qualification profile with available programs. You educate the client as to what he should expect and why the program selected is the best one for his needs, or the best one he can qualify for at the time. You must do the initial background/employment checks and reverse directory searches before the loan leaves your office. By the time you (and perhaps your processor) have finished preparing the paperwork, you are the expert in everything that pertains to this borrower and the loan package that is being assembled for presentation to the underwriter.

Finish the job, communicate!
Your final task, and perhaps the most critical one, is communicating all of the information in a fashion that makes understanding the case easy to a lender's underwriter, who is not clairvoyant, has never heard of the client and is not familiar with specific details that may be very relevant to the case at hand. There should be no room left for guesswork.

Clear communication begins with proper and accurate loan registration. Every lender has its own procedures and format that must be followed for properly describing the incoming deal. All required disclosures and documentation needed to approve the loan should be in the file from the start. Sloppy or inaccurate communication at this early stage may delay, or even lead to the unraveling of your borrower's loan. Once you have cleared this initial loan entry/registration stage, you can now proceed to communicate with the underwriter, or the undertaker. The one it will be is dependent upon the quality and accuracy of this communication!

The industry tries to make this communication easy and consistent by standardizing the submission forms and procedures. However, these only address the format of the presentation. For a "plain vanilla" deal, the regular 1008 form (or the Mortgage Credit Analysis Worksheet) and 1003 form can pretty much describe the case completely. For more complex cases involving multiple borrowers, several properties, multiple income streams, or situations involving complicated credit histories or hard-to-trace asset trails, your complete knowledge of guidelines and good communication with the lender will be the key to your client getting a clean approval! If the degree of complexity in a given deal causes the underwriter to spend extra time coming back to the case over and over again, this may lead to frustration and reduce the credibility of the loan application, as well as the submitting broker/originator. This is especially true when the perceived complexity results from incomplete, piecemeal or misleading information in the original submission. In other words, poor communication! In today's mortgage climate, when unemployed underwriters may outnumber employed ones, the underwriter is not going to take chances with loans that do not make sense!

The solution: More communication
In the commercial lending world, it is customary to provide a brief executive summary, which describes the key points of every loan submission. A well written executive summary can make the entire balance of the loan application—including complicated financials, income histories or specific property issues—much easier to understand.

This can also be a tremendous tool in residential lending! A note—a few brief sentences at the beginning of the file telling the underwriter what they are about to see and perhaps why the file is presented the way it is—may save many unnecessary phone calls and eliminate unnecessary conditions. It may even make the difference between a loan being approved or declined! This is especially true when something is missing in the original submission and will be sent in separately. This small, but helpful step will also build respect for the submitting broker or loan originator and will be remembered when the next loan arrives.

Conclusion
Our mortgage environment has morphed almost overnight! Most of the easy loans, which required little documentation, are gone. Going forward, we will be increasingly involved in loans requiring much more investigative detail to insure "investment grade" quality in order to be sold into the secondary market. This results in more documentation, guideline compliance issues and increased complexity. A well-researched, accurately-documented and properly-submitted file is now a prerequisite for a commitment that is not overburdened by conditions! A file that also communicates additional, helpful information to assist the underwriter is more likely to be approved quickly and earn you the respect you deserve for a job well done!

Serafim Ivask is a wholesale account executive at SunTrust Mortgage Inc. and has been actively involved in the residential and commercial mortgage industry, both retail and wholesale, for more than 20 years. He may be reached at (516) 650-3078 or e-mail serafimivask@optonline.net."

Serafim has written another article following this one which I'll post when it becomes available online. This article originally appeared in the Mortgage Press and can be found here.

Business Cash Advances

If you haven't seen it already, you're missing out on our newly introduced Business Cash Advance Program. We're now able to put cash in your clients' hands without any real estate as collateral. This program is able to leverage current credit card sales into cash by selling a small portion of their future credit card receipts to us. It's that simple!

In light of today's tightening credit markets, this program is a fantastic way to help merchants get much needed cash for their small business. These advances carry additional benefits such as:

• NO Personal Guarantees necessary
• Minimal Stips
• Fundings in 5-10 days
• Quick application. Takes only 60 seconds
• NO Fixed Paments & No Late Fees
• No Upfront Fees
• Broker paid 3-4% on every deal

The merchant is advanced a percentage of their monthly sales (typically between 50% and 250%) and then repays these advanced monies by having a portion of future sales deducted each month. Please note that higher advance percentages are available depending on the ratio of credit card sales to gross sales each month. Calculate a Maximum Available Advance now.

Any business generating a portion of their monthly revenues via credit card receipts can apply. Take a look at just some of the business owners we can help:

• Bar / Nightclubs
• Beauty Salons
• Dry Cleaners
• Gas Stations
• Restaurants
• Retail Sales
• Hotels / Motels
• Auto Repair Shops
• Day Care Centers
• Convenience Stores
• Nail Salons
• and so many more....

Funds can typically be wired within ten (10) business days and there are no up-front fees charged to either you or your clients. These funds can then be used for whatever purposed best suits your client, though we do recommend reinvesting in the business. Credit isn't the sole deciding factor, though can play a role, as extremely poor personal payment history could potential adversely affect the chances for success of the business.

We offer a weekly training session on this fantastic new product and loads more information is available on our website.

Commercial Appraisals

With the vast increase in commercial submissions we've seen lately, the question invariably gets asked... "Why are commercial appraisals so expensive and why do they take so long to perform?"

It's no surprise that the $2,500 to $10,000+ price tag can generate a little sticker shock from our broker clientele, as well as the end borrowers. It's also understandable that the 2-5 week timelines that these appraisals typically take can also be a bit alarming. Let's unpack the commercial appraisal process and spend a little bit of time exploring he differences between your average residential and commercial appraisal.

95% of all brokers have spent the majority of their time on the residential side of the lending fence and are well accustomed to $350 appraisals that can be completed in a matter of 3-5 days. They know the ins and outs of the process, and most importantly, can easily 'sell' their client on the cost, necessity, and benefit they'll receive.

It's important to realize that for a residential appraisal, the vast majority of information needed about the subject property is able to be found online and through public records. Comparable sales, photos, and online estimates of value are easily accessible and can be found without leaving one's office. Commercial appraisers must spend a signficantly increased amount of time in the field performing research compared to their residential brethren. Additionally, residential appraisals typically only consider the sales approach, where as commercial appraisals require additional analysis of both the income and cost approach.

Sales Approach

This approach, on the surface, is the simplest: find a similar property and see how much it sold for and when. Commercial properties, however, due to the dissimilar, complex, and varied nature make this process increasingly difficult. True comparable properties are typically not located next door, or sometimes even in the same town. Appraisers must scour numerous sources and typically spend greater amounts of time seeking out genuinely comparable properties -- unfortunately there is no 'Zillow.com' for the commercial world.

Income Approach

This approach seeks to determine a property's Net Operating Income and then extrapoloates this figure into a reflection of the properties worth using a given 'Cap Rate'. Unfortunately, true rents are an extremely elusive number that can typically only be located by contacting owners/managers of similar properties and attempting to extract a rent-roll from them. As you can imagine, calls of this nature from random appraisers are typically not the highest of priority for most business owners. After finally garnering this information, the appraiser must then visit each separate location and take multiple pictures of the comparable property to include in their report.

Cost Approach

The cost approach is exactly what it appears to be on the surface, an estimate of the approximate replacement cost of the building should severe damage (fire, wind, storm, etc) occur or demolotion be necessary. The appraiser will typically consult a cost-data book such as Marshall & Swift's Commercial Cost Handbook for a rough approximation of replacement cost per square foot.

Summary

Appraisals performed on commercial properties are more complex and time consuming in nature and as such, the individuals who are engaged to put together these reviews must undergo additional educations and licensing requirements. We require these field reviews perform by those with the MAI designatation, or Member of the Appraisal Institute. As a result of the numerous field visits, phone calls, and overall time spent researching the above-mentioned valuation approaches, hopefully one can see why commercial appraisals both cost what and takes as long as they do.

Commercial Loans - The NEW SubPrime

Stepping over line and into the realm of commercial lending can feel a little daunting at first - almost like stepping into the Wild West of the lending world. Trust me when I tell you that while there are differences, it's nothing that you'll need a six-shooter to overcome. Let's explore some of the reasons why a broker would want to step over this line and once having done so, what programs GMC has available and at the broker's disposal.

It doesn't take a rocket surgeon to figure out that the SubPrime lending segment is near extinct, if it's not there already. Prime, Alt-A, and even hard money deals are tougher to get done today than at any other point in the last 10 years or so. There was just an article today posted on Reuters showing how Countrywide's volume is down 48% this October as compared to last. Let's face it, the mortgage broker's job is only getting more difficult as time goes on and a little positive news would be a welcome change.

Commercial loans have long been the realm where only the most rugged brokers have tread and they've reaped the rewards for doing so. It's a sector that has immensely fewer regulations and doesn't know the meaning of the acronym RESPA. It's a place where the recent hits to residential values have taken less of a toll and a place where you can find positive light to shed on your business.

Property Types in the commercial world aren't quite as cookie-cutter as your residential SFRs, but they do have a vast advantage, they're typically income producing. The average property types are offices, warehouses, retail space, & multi-family (5+ units). These properties are all quite easy to put a tenant in and will therefore cash flow and literally pay for themselves. The DSCR (debt service coverage ratio [Wikipedia Info]) is a key acronym that you'll need to learn. It relates to the amount of net income a property generates as compared to what the debt on the property costs. Most lenders look to have a DSCR of 1.1 or greater, allowing for some cushion.

Loan Types also vary widely from your typical 30 yr fixed and ARM options. Loan structures can range from a 6-12 month balloon, to 30 year fixed loans and cover everything in between. It's important to talk to you borrowers and find out exactly what their goals are for their loan, as rates, fees, and prepayment penalties can vary widely depending on loan type.

Rates & Fees are typically inline with residential rates, with factors such as credit, property type and LTV vastly affecting pricing. Loans do have the ability to be priced as low as 6%+ with NO points up front, though prepays are typically mandatory on these loans.

You'll find that GMC offers several commercial programs that allow for all types of properties and borrowers to receive financing. A brief synopsis of these programs are expounded upon below. Our Loan Matrix also has a quick break-down and overview of these programs, as does our latest Commercial Flyer. Let's start with the cream-of-the-crop, and work our way through to our Hard Money programs.

Conventional.

• Property Types: Typically more cookie-cutter property types (Office, Warehouse, Retail, Multi-Family, Light Industrial, Apartments, Hotels).
• FICO Limits: 660+
• Rates: Better properties and borrowers, better rates - starting at 5.99%
• LTVs: Up to 80%
• Loan Amounts: $750k+
• General: This is the top-tier commercial program, great rates require clean borrowers and clean deals.

Small Balance.

• Property Types: All of the above, as well as Bed & Breakfasts, Auto Services, Day Cards, Restaurants, Marinas, and other income producing properties
• FICO Limits: 660+
• Rates: Starting around 8.5%
• LTVs: Up to 70-75%
• Loan Amounts: $250k - $3M
• General: Greater risk = poorer pricing. High LTVs, unique property types, lower FICOs, etc. will all result in higher rates & fees.

Hard Money.

• Property Types: All of the above, as well as land and anything else under the sun (@ the right LTV)
• FICO Limits:. None, this is hard money!
• LTVs: 65% Max
• Loan Amounts: $1M+
• General: Hard money is an expensive date, but could be cheaper than giving away equity and is great for borrowers who can't otherwise find a home for their loan.

As you can see we try to cater to most any scenario that you'd run across. The easiest and fastest way to start submitting your commercial deals is to submit your scenario via our online quick submission form. This is located at http://commercial.gmcmortgagecapital.com/ and should only take about 60 seconds to complete.

Our commercial desk will then get back to you if we're able to help out with the scenario. They will typically ask for the following, necessary documents:

• 1003 - Used for hard data about the deal, borrower, property, etc.
• Credit Report - Allows us to judge which program(s) the borrower(s) qualify for
• Executive Summary - Paint a picture of the deal, borrower, situation, scenario,
  anything we need to know
• Sources/Uses of Cash Document
• Refi - What are they doing with the cash-out
• Purchase -where's the cash coming from?
• Appraisal (if performed) - If not one, get digital pictures, MLS listing, drawings, anything to help paint the picture
• Purchase Contract (purchases only) - To judge terms, timelines, etc.

I think you'll find our Commercial Desk a pleasure to work with and we'd like to help you, your borrowers both in getting these deals funded. We'll be happy to do a little hand holding at the out set wherever and whenever necessary and appropriate. It might take a little bit to get truly comfortable in this sector, but the outcome can open numerous doors as we all work through these trying times.

Too Many Homes, Too Few Buyers

As touched on briefly in a previous post on valuations, one of the major factors overhanging our current real estate market is the sheer number of properties currently available for sale. This vast inventory of unsold homes blankets the nations and keeps our prospects of increasing values in the dark.

A recent news release from the National Association of Realtors notes that existing homes sales in September have fallen to their lowest levels since 9/11. The data shows that 5.04 million units changed hands in September 2007, down 19.1% from 6.23 million year-over-year. This decrease in sales of 1.2 million units, year-over-year, can lead to only one thing, increasing inventories.


This chart details the rise in inventories from January of 2001 through September of 2007. The clearly upward sloping trend has increased exponentially since the summer of 2005 and currently sits at around 4.5 million unsold units.


This represents a roughly 10.5 monthly supply of homes (see chart left), or an average marketing time of 315 days. At GMC we've been seeing more and more appraisals with the 'greater than 6 month' marketing time box checked, and trend that will surely continue. Looking at a 90 day sale price (~28% of the average time on market), one can clearly see that values will need to be reduced to accurately reflect the price expected to be received within this time frame.

Each of these charts goes to show that we're no longer living 24 months ago. The current market and housing economy are quite different than borrowers, brokers, and lenders are accustomed to seeing. We all need to realize the effects that years of surplus liquidity have had on our marketplace. As in any market that gets a little over-zealous there needs to come a correctional phase. This just happens to be the stage we're in now and, per current foreclosure predictions and other data, one that looks to continue.

Jumbos - Supersize my loan

Hard money, super jumbo - is it really true!?! The quick answer is YES, we can lend these kinds of dollar amounts. In fact, we've started to see quite a few of these $1,000,000+ deals over the course of the last few weeks alone.

The jumbo loan has always been a deal that we've been able to get done, though it does take a little more finesse and diligence to do so. Let's delve into the inner workings of these super-sized loans in order to get a better understanding of how a lender looks at these larger loan amounts.

To begin with, it's good to realize that our continued moniker of 'common sense' plays even more of a role on these jumbos. As always, our worst-case scenario is to foreclose on the property and these large deals only increase this concern. Monthly payments are $10k+ always for the borrowers, as are our carrying costs. Selling these homes is tougher in the current real estate market - especially in light of the credit crunch(felt even more so in non-conforming, jumbo paper). In order to mitigate the risk, and these increased carrying costs, LTVs are going to be limited to 50-60% on the vast majority of these larger loans.

Documentation of income/assets is a MUST on these loans. We absolutely will not be able to do a Stated/Stated deal of over $1M, and really over $750k or so. We always want the payment stream on these deals and not the property. We have to ensure that the borrower(s) has/have the income (provable, documentable income) to make the payments. We also have to better understand their current story, why their seeking hard money, and what true benefit is derived from the deal. If they're self-employed we need more info on their business - how long in business, what they're doing, why they're seeking an 11-12% rate on their mortgage.

The appraisal and the current home's actual value becomes more valuable at the onset. We'll take a look at the date performed, the sold date(s) of the comps, the condition of the property, etc. A quick Zillow.com report will show us the other homes in the neighborhood and if they're truly in the same ball-park as the subject property. If the appraisal's showing $3M and the neighborhood is all in the $1.5M range, it makes us think twice. We're typically able to get a pretty good sense of the home's rough value within 60-120 seconds by looking at each at the appraisal and a Zillow.com neighborhood overview. Realtor.com is another good source to take a look at for current listing prices of homes in the area.

One must realize that a LOT of these deals, especially with older appraisals, have been shopped to all corners of the country in an effort to get them done. Realize that there's typically a reason they haven't - they're not good deals. This may be a factor of the property not being able to support the given valuation, the borrower not being able to support the projected monthly payments, or a combination of both.

At the end of the day, these loans are under a much finer toothed comb and more focused magnifying glass than our average $250k loan amount. There's more reward involved, but juxtaposed against increased risk. We WANT to close these deals, but we only want to close the best of these deals and the ones that make sense from all angles. As these historical times continue in our sector, those left are continually more risk averse. The super-sized loan, by nature, carries more risk - we need to mitigate that risk with solid value and solid borrowers.

Timeline - Can we close yesterday ?!?

Ever heard of a loan closing in less than a week? We've done it. Submitted on Monday & closed on Friday. I'm not going to stand here and tell you that it's an easy thing to accomplish, but if all the stars align correctly, it is possible. Even though the majority of deals take longer that 7 days to close, know that lenders want to close a deal just a quickly as borrowers and brokers.

Let's unpack the loan processing / underwriting process and see where the potential pitfalls are and how proactive preparation will only speed a loan to closing.

TODAY- Our Account Executive (AE) gets a call to price out a deal. Within 2 minutes they'll have a PreApproval.pdf document emailed out, inclusive of all information necessary to get the deal submitted into our corporate office for processing.

TOMORROW- Our Account Manager (AM) is going to call and/or email the broker. They're going to be the ones collecting the following required documents:

• 1003 / 1008 - signed by borrower(s)


• GFE, TIL, Borrower's Authorization - signed by borrower(s)


• Credit Report - 30 days or less preferrably


• Appraisal - .PDF, color interior photos, <90>
  
• Signed Terms Letter


• Signed Letter of Net Tangible Benefit - handwritten


• .FNM digital copy of file

Once all of the docs are sent to the AM they'll put together the package and submit it to our corporate office for processing.

Day 1- Our Loan Setup Desk is going to review each file and look for the following items (links are to GMC blog entries pertaining to each subject):

• VALUE - 60-90 day sale price. Recent, Close Proximity, & Bona Fide comps. Property is in good condition, no bullet-proof vest needed to visit, no major repairs necessary.


• EMPLOYMENT - Verifiable employment, benchmarkable income. 50% max DTI


• NTB - True Benefit to the Borrower. Better off after we close the loan than before

Each deal is then color based on findings.

• GREEN - Everything looks good, we order the BPO, send Prior to Doc stips to broker


• YELLOW - Minor issue(s) to overcome. Borrower/Broker asked to pay for BPO (rebated @ closing), Prior to Doc stips sent to the broker.


• ORANGE - More serious issue(s) to overcome. Once issue(s) cleared, stips are sent. Borrower/Broker required to pay for the BPO


• RED - If the deal just doesn't work, a denial letter will be sent with the reason why

DAY 2-5 - We'll get the BPO back and send it to our end-investor for value confirmation. Final value / loan amount / terms will determined and the broker will be notified of these terms for acceptance thereof.

DAY 3-12 - All remaining stips are cleared and the file is sent to underwriting. Any remaining stips are sent to the broker

DAY 10-14 - Deal receives its final CTC, is doc'd out, closes, and funds after the recsission period is up (OO deals).

As you'll notice, there is a lot of wiggle-room in the above timelines and dates. The biggest time savers to get a deal closed quickly are:

• Deal PreScrub. Make sure value, employment, & net tangible benefit are all not going to be an issue.


• BPO Process. Ensure the borrower is aware of the BPO process and that someone will need to come inside to take a few pictures.


• Stip Submission. Be timely with submitting stips back into the office. Most of the delays come from this aspect and momentum is key with these deals.

Most importantly, be responsive. Our entire goal is to either KILL or CLOSE a deal as fast as possible. Understand that no one gets paid to work on a file that dies. We'll do our best to keep the broker updated throughout the process with exactly what we need.

Our focus in the back office is to turn the ORANGE deals to YELLOW and the YELLOW deals to GREEN - with the lion's share of our time spent working on closing the GREEN deals. Any help to make sure that deals fall into the GREEN category from the outset will only help get to get them closed quickly !!