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SMR Financial introduces recession survival kit

National Mortgage Professional
Jun 06, 2006

The commercial corner: Overcoming objections in commercial dealsMike BoggianoEducating mortgage borrowers The Mortgage Press is pleased to present "The Commercial Corner," a monthly column by Mike Boggiano of Silver Hill Financial LLC, dedicated to answering your questions about the commercial mortgage marketplace. If you have a question that you would like answered in a future installment of "The Commercial Corner," please e-mail [email protected] Many of the questions you had when initially learning about commercial lending are the same questions your borrowers will have during the process, particularly if the transaction is their first experience with commercial lending. Leverage your role as a trusted advisor to educate buyers about the aspects of lending that they may not understand. Support your recommendation of the best financing options with an explanation of why they're the best overall values for the borrowers' needs. You can prevent objections up front by setting expectations based on the customers' situations and proactively addressing the concerns that you predict may arise with each particular deal. Here are three of the most common objections for first-time commercial borrowers: My borrower thinks the rate is too high The first point to take away here is that selling on rate alone is dangerous and something that you never want to do. The key is to sell on value, reinforcing your role as a trusted advisor who provides the best program to meet your customers' needs. Nonetheless, rate is a factor in the equation, so be sure that you are prepared to compare all-in costs of the loan—the only way to truly compare rates. Look not only for cost savings, but also for value-added features that sweeten the overall package. Let's assume that during your evaluation of commercial lending programs, you already determined the best overall programs to offer your borrowers, based on flexible features and minimal fees. For example, certain small-balance lenders have eliminated lender points, while also providing a break on third-party fees, such as flood certification, environmental screening/insurance and appraisals. When evaluating rates with your borrowers, the all-in cost comparison is essential to providing a complete picture, as these third-party fees can add up to thousands of dollars in savings. In addition, consider loan terms as part of the big picture. For example, take into account the monthly payment on a 30-year term, as opposed to a short-term balloon. A 30-year, fully amortizing loan provides a lower principal and interest payment and, thus, better cash flow for the borrower in question. Save your customers the costs and hassle of re-qualifying by avoiding balloons. Finally, keep in mind that lower rates usually require more stringent underwriting guidelines to qualify borrowers and properties. In addition, low rates often come with terms that are not as favorable. Lenders offer a variety of programs, a few of which function more like a residential mortgage than a commercial loan issued by a bank. Some borrowers may be looking for the easiest transaction to close, rather than the lowest rates. In this case, flexible debt-to-income underwriting that favors a borrower's ability to repay the loan rather than the debt-service of the property may be the best choice, even if the rate is slightly higher. A smart borrower will recognize the overall value of your recommendation when presented with all of the facts. My borrower thinks the appraisal costs too much Commercial appraisal reports are much more complex than their residential counterparts. It's important to explain to borrowers that commercial appraisers are required to develop an income approach to value and must conduct market research on appropriate rent amounts, occupancy, vacancy and rent-loss levels. This can be particularly costly in a rural area, where sales comparisons are not readily available. While a commercial appraisal does cost more than a residential one, you can keep the price down by partnering with a commercial lender who requires primarily limited appraisals. Some lenders will even solicit bids for appraisals, which is a big plus in getting the most qualified professional with a competitive rate and dependable turnaround time for you and your borrower. My borrower doesn't understand the commercial lending process and is expecting a fast turnaround Prepare your borrower for what to expect in terms of the timeline as early in the process as possible. Turnaround time varies by lender, but can be especially lengthy with a traditional commercial process that involves loan committees—often 60-90 days at minimum. Again, your selection process is the best place to start. You and your borrowers will benefit from quicker closings when you choose a commercial lender with a streamlined process and common sense underwriting that does not subject borrowers to the whims of committees. For example, look for a lender that offers pre-approvals and processing similar to a residential program. A flexible underwriting approach with parallel processing concurrent to the appraisal can speed the overall timeline significantly. Some lenders promise closings in as little as 30-45 days. Your customers will always have questions, during the lending process. When it comes to commercial loans, keep in mind that setting expectations up front with the borrowers is important, but your first task is to select a lending partner that makes the commercial process as easy and predictable as possible. Mike Boggiano is senior vice president, national sales manager for Silver Hill Financial LLC. He may be reached by phone at (877) 676-1562 or e-mail [email protected]
Published
Jun 06, 2006
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