Is commercial lending right for you?Dan Sullivanrules and regulations, no yield spread premium limit, commercial appraisal, capitalization rate
The devil's advocate
It's been a rough winter no matter where you live. We are all
hoping that spring will bring some relief to all the bad news that
keeps piling up on the mortgage industry, but it doesn't seem
likely. Home sales are down, refinances won't last forever and
property values are still causing problems. Is it time to abandon
residential mortgage and start looking for opportunities elsewhere?
Maybe, but I say no!
If you are like the rest of us, you have been barraged with
e-mails saying it's time to look at commercial lending. The e-mails
and advertisements tout that commercial lending doesn't have all
the rules and regulations, or the rights that residential lending
affords borrowers. In many areas of the country the commercial
market is fairly strong, while the residential market in the same
area is suffering. But let's take a closer look at commercial
First of all, you have been barraged with commercial lending
e-mails, and so has every other residential loan officer in the
country. Second, commercial lending doesn't have all the rules and
regulations, and with no yield spread premium limit, there's a
fortune to be made. Then again, every residential loan officer in
the country is trying to get a commercial loan right now. Before
you started thinking about trying commercial loans, remember that
there wasn't a shortage of commercial loan officers before all the
hoopla started, and there hasn't been a sudden surge in the number
of commercial loans. Now there are simply more loan officers trying
to get a piece of the same pie, making it more competitive. Doesn't
that sound like the residential market you are in right now?
And what about the learning curve? Have you ever seen a
commercial appraisal? Do you know where to get one, what the
investor will require on it, what a capitalization rate is and what
it will cost? What endorsements are required on title? What is the
cost of a commercial title report? If you don't fill out a 1003 and
a good faith estimate, what forms are required? Before you abandon
residential lending or take on commercial lending on the side, you
should figure out how long the learning curve will be and where to
learn the trade. Remember when you started in residential mortgage?
The first year wasn't much fun as you were trying to learn the ins
and outs of the industry. Don't forget that you'll have to learn
the commercial lending process as well.
Am I saying not to ever get involved in commercial lending? No.
Many great commercial loan officers came from the mortgage
industry. I am saying that you shouldn't jump in the pool if you
don't know how to swim. Commercial lending may seem like the right
move, but there are also things that can be done to get a loan in
the residential market right now, even while it's in bad shape.
I am convinced that if you put the same effort into building new
Realtor relationships that you would have put into learning
commercial lending and attracting a commercial loan, the payoff
will be tenfold and more beneficial in the future.
You already know the ins and outs of residential lending, you
just need more business, and a new way to get it. Here's how: Drink
twenty cups of coffee in the next twenty days. You might think I'm
kidding, but you are twenty cups and twenty days away from more
loans in your pipeline. This is a method I have used over and over
again as a loan originator. When the market slowed down, I
committed myself to drinking twenty cups of coffee in the next
twenty work days. Schedule a coffee date with each Realtor that you
know, whether you are currently doing business with them or not.
While you are having coffee with each of them, ask who else they
know that might be willing to have a cup of coffee with you. Pretty
soon your calendar will be filled with appointments.
Why would a Realtor drop everything to have coffee with you?
They would do it because you are not trying to convince them to use
you, but that you are hoping to learn from them. In fact, tell them
up front that you don't want their business. Tell them you want to
hear their perspective on how to become a better loan officer. Most
Realtors will be happy to give you tips on how to be the perfect
loan officer. People love the opportunity to help people and take
credit for it.
Keep in mind that the reality of the situation may be completely
different. You may not receive much practical advice from your
twenty Realtors. Once, a Realtor suggested to me that I should take
every call from a Realtor that comes in and never allow a call from
a Realtor to go to voicemail or even the receptionist. This was
impractical advice. However, many of the ideas you will hear are
Make sure you do a few very important things during the coffee
date. First, take notes so that the Realtor knows what they're
saying is important to you. Second, listen carefully because your
real agenda is to establish a relationship with this person and
understand what they have to say. Third, offer to drive. If you
drive to a coffee shop that is five minutes from their office, you
have just turned a twenty minute cup of coffee into a half-hour of
relationship-building. While you're driving back to their office,
talk about how you think it's important to keep everyone informed
on the progress of a loan, or whatever you picked up on that you
think is important to them. You may also have the opportunity to be
introduced to other Realtors in their office. This method is just
one way to bring in more business right now.
Now back to the original question, is commercial lending right
for you? Can you make more money by learning commercial lending and
marketing to commercial borrowers, or will you do better by
sticking with the residential market and finding ideas that will
work for you? It's your decision, but make sure that you are aware
it may be difficult. Good luck!
Dan Sullivan is the vice president of sales and a managing
director for Velma.com. Dan has
served on the board of directors of the Idaho Mortgage Lending
Association and is a current board member of the Idaho Association of
Mortgage Brokers. He may be reached at (208) 854-7905 or e-mail