The commercial marketplace: An opportunity you can't afford to missSalomon WancierCommercial mortgage lending
Before the start of the new year, industry experts began to
predict that 2006 would bring an uninvited cooling off in the
housing and mortgage markets. However, most experts also agree that
economic growth should remain strong, with commercial and
multi-family mortgage markets expected to thrive. To survive and
succeed, mortgage brokers and originators would be wise to put into
action a plan for adding commercial offerings to replace the
once-booming refi and origination volume enjoyed in years past.
Competition in the residential marketplace has already tightened,
making a strong case for diversification. As a large small-balance
commercial lender, we've seen thousands of mortgage brokers make a
profitable transition from residential-only to residential and
commercial. We expect the trend to continue for a variety of
reasons. In addition to helping mortgage brokers compete for
business and enjoy increased income, commercial offerings can boost
brokers' and originators' image among borrowers.
The results of a consumer survey published in National Mortgage
Broker in June 2005 showed that 81 percent of respondents selected
as "more professional" a mortgage broker who offers both commercial
and residential mortgages, as opposed to a broker offering
residential loans only. In addition, 75 percent of respondents
selected as "more credible" a mortgage broker offering both
commercial and residential mortgages. The survey findings suggest
that brokers can significantly improve their image and customer
perception just by adding commercial mortgages to their offerings.
Combine this conclusion with market trends that point to the
competitive advantage of playing in the commercial space, and you
have a compelling argument for crossing over.
What to look for in a commercial lender
Finding the right commercial lending partners is a vital first step
in making a successful transition. Traditionally, commercial deals
have been avoided or passed over by many residential brokers,
because of the seemingly complex and lengthy lending process.
However, the commercial market (particularly the small-balance
segment) has made strides in the past few years with new programs
in place that serve the niche more effectively.
For example, an excellent strategy is to find a lender that
applies the residential debt-to-income underwriting approach to
small-balance commercial loans, which, by design, makes the
transition from residential to commercial easy for brokers. This
model is attractive to borrowers, who can qualify on their personal
financial strength, not just the cash flow of the property, and to
brokers, who can increase profit potential with a streamlined
process that mirrors residential.
Identifying commercial lenders is not difficult. Industry
associations, publications, trade shows and online searches are
valuable sources. The more challenging task is to ensure that the
lender is a good match for you and your goals. It is essential to
align yourself with a lender who provides a high level of customer
service, broker support, training and marketing experience.
Consider working with a mentor who has commercial experience to
help guide your diversification strategy and planning. A trusted
lending firm may also provide this type of assistance via an
account manager or in the form of training and education.
Eligible commercial property types differ by program, but
generally include mixed-use, multi-family, office, retail,
self-storage, light industrial, warehouse and mobile home park.
Terms, loan amounts, credit requirements and broker compensation
also vary by lender. As you become comfortable in your role as a
dual mortgage broker, consider rounding out your database of
lenders to offer a variety of loan programs that meet the needs of
a wide range of borrowers.
Sample questions to ask when evaluating a commercial lender
include the following:
• What is unique about your program?
• What are your minimum and maximum loan amounts, property
types and credit requirements?
• What are your underwriting guidelines?
• What is the typical timeline for pre-approvals and
• What is your fee structure?
• What documentation is required to price a loan?
• What types of broker support do you provide?
• How do I get started?
A suggestion for easing the transition from residential to
commercial is to start with small-balance deals up to $1 million.
Look for a streamlined lending program that promises quick
decisions, flexible underwriting, innovative program features, fast
processing (look for a lender who manages the appraiser, title
company, insurance, etc.), attractive fees, incentives or reward
programs and extensive broker training and support. Marketing
assistance is another attractive benefit.
Your first commercial deal
Begin with transactions that are a natural extension of your
residential business. Small-balance deals, such as multi-family and
mixed-use, are smart choices. Starting with these more "vanilla"
property types will help you gain the confidence to transition into
more complex deals and expand into a wider variety of lending
programs. For instance, your next step might be commercial condos,
which are growing in popularity for small business owners and
investors. Talk with your lender partner about other property types
that may be right for you.
Your existing client base is the best place to start. These
borrowers are often the same individuals who will become your
commercial customers. Modify your marketing and advertising
initiatives to reflect your commercial loan offerings. Review
borrower profiles for professionals and small business owners who
may be interested in purchasing office space or refinancing their
existing commercial properties. Check the real estate-owned section
of the 1003 application for customers who already own commercial
property. Network with existing and new referral sources who can
bring you commercial leads. Real estate agents, CPAs, attorneys and
related professionals can help identify opportunities outside your
existing customer database.
Understanding a borrower's objectives is important to
effectively serving his needs. During your initial interview,
inquire about the borrower's investment strategy and the level of
documentation he can provide, so you can place them with the
appropriate program. Learn about the property details, the
creditworthiness of the individual and the intended goal of the
purchase or refinance. Find out the expected holding time of the
investment, condition of the property, occupancy level, tenant mix,
outstanding mortgages and availability of income documentation, to
have a better understanding of the transaction. With each
commercial deal, you'll gain the confidence and momentum to
continue expanding your business.
Easier than you think
Offering commercial products is a smart way to boost your image and
production potential in a narrowing residential marketplace. The
case for diversification has become even stronger in recent months.
With the right lending partners and reasonable expectations, you
may be surprised to find that the transition is not as challenging
as you once thought. Consider commercial lending an exciting
opportunity to offer more to borrowers, differentiate yourself
among the competition and enjoy the rewards of earning more income,
while closing fewer deals.
Salomon Wancier is vice president of marketing
communications for Silver Hill Financial LLC. He may be reached at