In the corporate vernacular, terms like "innovation," "paradigm shift" and "revolutionary" are overused nearly to the point of futility. Hearing a company proclaim its "first-class customer service" is like hearing a politician promise "a better tomorrow," or a salesman pledge their "prices that can't be beat." Still, once in a blue moon, a company comes along and makes us wish these words weren't so hackneyed: a pacesetter that changes what we expect, and makes life easier by thinking about old ideas in new ways.
The Mortgage Press recently had an opportunity to sit down with such a company (interestingly, in July 2004 when there was, in fact, a blue moon). Headquartered in Miami, Silver Hill Financial LLC originates small-balance commercial loans of up to $1 million, sourced through a network of brokers and correspondents. While there are certainly other players in this market, Silver Hill's most notable accomplishment--the one that invokes words like "innovation"--is how they've harnessed the unruly small-balance commercial lending process into something quick, consistent and remarkably broker-friendly.
Fear of Flying
With the refi boom reduced to a whisper and the Fed steadily raising rates (up another quarter-point as of Aug. 10), residential mortgage brokers are ostensibly left with two options: diversify their product line, or face extinction. Opportunities still exist in the residential marketplace (reverse mortgages and home equity loans are the most obvious examples), but at substantially diminished levels. And then there's commercial lending, a category that for many residential brokers, conjures up a slew of trepidations: the loans are too complicated, too different from a home loan; they are unpredictable; and what's worse, they don't pay very well. For residential brokers, the commercial arena is often a scary place to venture.
Enter Silver Hill Financial and their dramatically simplified commercial lending process that integrates residential elements and standardized criteria. Combine an extensive training and support program, and the result is a commercial process that, for residential brokers, feels a lot like home.
Remembering the Borrower
When Silver Hill set out to create their commercial program, they started from scratch and set aside the traditional industry parameters that emphasized the property over the borrower.
"The preconceived notion about commercial lending has been that you cannot standardize the underwriting process because the properties are unique, the borrowers are unique and you need extensive expertise in order to properly assess the risk and be comfortable granting the loan," explained Joanna Schwartz, senior vice president for Silver Hill. "However, given our focus on loans under $1 million, we believe the credit decision is virtually identical to those made on a residential loan. If the strength of the borrower--their credit score, income and overall leverage--is truly the key indicators of their ability and willingness to pay us back, then we should measure those above and beyond everything else." Which is not to say that Silver Hill overlooks the property's worthiness. The commercial appraisal requires more property details than residential. However, Silver Hill's underwriting model offers much more flexibility, which means approvals for borrowers who would otherwise be turned away.
"If it serves the borrower, we underwrite [the loan] in a residential style; that is our primary focus and approximately 80 percent of our transactions are underwritten in that fashion," said Schwartz. "However, if a borrower does not pass under those criteria, we will look at the more traditional commercial underwriting aspects of the deal. So, the borrowers win either way."
Take, for example, an applicant who has a strong income and good credit, but has never invested in real estate before. What's more, the property they want to purchase is partially vacant due to poor management. Most commercial programs would reject this applicant because the property is not self-sustaining and the person does not have experience in the commercial industry. For Silver Hill, however, this is a target borrower; someone who is not overly leveraged, who sees an opportunity and has other sources of income that can carry the property while it's being repositioned in the market. As another example, consider a highly leveraged borrower who has a portfolio of 20 properties.
"We won't turn that borrower away because those are the borrowers who are very good at finding opportunities in the market," explained Schwartz. "In those cases, where the borrower would probably not pass our debt-to-income, residential-style underwriting, we will look at it like a traditional commercial deal. We'll consider the debt service coverage ratio and the cash flow of the property to decide if we'll take that loan."
Like the residential side of origination, Silver Hill has its own set of compensating factors to consider. And it's this sort of consideration of each individual borrower and unique loan scenario that makes Silver Hill distinctive among lenders.
It Takes a Village
Like most professionals venturing into a new field, residential brokers don't want to feel isolated or completely on their own when taking on the commercial arena. To ease the burden, Silver Hill offers an extensive training and support program for its brokers, making the transition from residential to the commercial arena much easier.
"You don't have to be an expert on commercial properties," explained Silver Hill marketing director Salomon Wancier. "If you can submit a 1003 and a loan supplement, we'll take it from there and walk you through the process. You can have as much or as little involvement in the transaction as you choose."
Every broker is assigned an individual account manager to provide personalized customer service and support. The account manager, in turn, is backed by a staff that is dedicated to facilitating the loan process, and makes sure that the borrower and broker are properly serviced. This includes filling in the gaps of the broker's commercial lending knowledge. The company also provides marketing materials so brokers can generate leads and facilitate their transition into the commercial business.
"Once a loan is pre-approved, the borrower and broker receive a letter that introduces the team of people who are going to be working on that deal throughout the process," said Schwartz. "It introduces the account manager, the account assistant, the closer and the processor--the four people who, from an external perspective, a borrower and broker will deal with. This is a real comfort for brokers; the fear they have disappears right away because any question they have can be answered immediately."
"We will be your co-broker, so to speak, in that we'll educate you about the process, facilitate getting your deal closed and you still can earn your full commission," explained Silver Hill vice president, national sales manager Michael Boggiano, CPA.
Brokers can also take advantage of the company's Silver Sessions, a nationwide series of two-hour training sessions on Silver Hill's programs and how residential brokers can join the commercial marketplace.
The training series will soon be offered online as well.
"The e-learning modules are an introduction to our process and our definitions of the commercial lending process for small-balance loans," noted Wancier, who designed the online program.
Once a broker or company has established a relationship with Silver Hill, the hands-on support only increases through the Alliance Program.
"Our Alliance Program is designed for companies or selected brokers who have met certain volume requirements," explained Schwartz. "We will travel for clients who have multiple loan officers and personally give them training."
Alliance Partners also have access to a broader array of marketing assistance including custom marketing materials and pricing benefits for closing a higher volume of loans.
The Silver Lining
Silver Hill's average closing time is 45 days, and pre-approvals are delivered within 48-72 hours. Brokers can earn two points on the front end of the loan, and two points on the back through a yield spread premium and reasonable additional fees. On a $500,000 commercial loan, brokers can walk away with between $20,000-$22,000 in fees and commission.
Silver Hill has also designed their operation as a parallel process; once the appraisal is ordered, the company's staff immediately go to work: the closer begins working on title, the processor is collecting the required documents to review the underwriting, and the goal is to have the underwriting completed before the appraisal is received. This is all designed to create a rapid and predictable closing time that mirrors the residential process.
Dealing with third parties is another concern facing brokers: there's the appraiser, the title company, and environmental evaluations and insurance. Silver Hill manages these processes, keeping it simple and predictable for the broker.
So, what does it take to be successful as a Silver Hill commercial broker? Primarily, it takes interest and commitment.
"If it sounds like something that [the broker is] very interested in and they want to pursue it aggressively, they will be successful, regardless of whether they start out as a two-man shop or a 20-man shop," said Schwartz. "It's really a matter of their commitment to building this line of business and making sure they partner with a lender they can trust."
"A broker can basically be set up with a phone, a desk and a computer and doesn't need to be in New York City; he can be in Des Moines, generating traffic to his Web site," explained Boggiano. "As long as you're dedicated to marketing the program and drumming up business, you're going to be very successful."
Through creative thinking and bold ideas, Silver Hill Financial has changed the commercial lending process for small-balance loans. For residential brokers facing a shrinking pool of options, this may be the life raft they've been looking for.
Silver Hill Testimonials
What are brokers saying about Silver Hill Financial LLC?
"In my 35 years of experience in the mortgage industry, I
have never seen such a level of cooperation. Silver Hill Financial
was incredibly cooperative and explained the process every step of
--Lanny Asner of Bankers Mortgage, Clearwater, Fla.
"A purchase mortgage for a 15-unit office building financed
with Silver Hill Financial: This was my introduction to commercial
financing. My deal went even smoother than your typical residential
--Richard Fancher of Northeast Mortgage, Southbury, Conn.
"Silver Hill Financial delivered on all of their promises
and the loan was approved. As a result, my customer was satisfied.
I have confidence in using a lender that can get the job done. Best
of all, I earned three points for myself."
--Anish Dave, president of Vista View Mortgage Corporation, Miami, Fla.