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.