By Fred Hollister
Turn Lenders’ Lemons into Lemonade
Senior vice president, director of
Global Fundings Inc.
The more you know about a rejected loan, the more likely you can place it elsewhere
you just got “the call”: your prI-
mary lender has declined your client’s
loan application. In today’s market, this
happens more frequently than anyone
Now what? You could just take that
loan package and fire it off to your
backup lender. Doing that, however,
could just waste another few weeks
and end the same way.
Nonetheless, you can take steps to increase the odds of a successful outcome
significantly. First, you must try to understand how the lender reached its decision
and what you must do differently to get
your client’s current deal done with another lender — as well as to find success
with your primary lender for future deals.
flawed analysis, you can make your case.
Be professional, polite and persistent. Learn as much as you can about
the factors that influenced the lender.
The best service you can provide your
client depends on understanding not
just what happened but why.
uncover the details
If a lender turns down an income-property or owner-occupied-property loan,
there likely were significant issues
with the property or the applicant. If
the lender simply doesn’t offer the requested loan program, it should have
let you know upfront.
If the issue is with the property, get
to the essentials right away.
How much information will the primary target lender share? Find out if
you can get a copy of the loan write-up. The lender may not share this, but
if you don’t ask, the answer will always
If the loan rejection occurred in the
loan-committee stage, get a copy of the
appraisal and environmental report and
anything else your client paid for. Even
if your backup lender must order a new
appraisal, it can probably underwrite
the deal using the one already on hand.
A letter of intent from the new
lender often is enough to keep a purchase contract alive if it is promptly
presented to the seller. It can make it
much easier to secure a purchase-con-tract extension.
Finally, ask for a referral. Ask for suggestions about another lender, even if
you already have a backup plan.
by Fred Hollister
“ 6 Tips for Getting Things
Done,” December 2008
“ 8 Things Politics Can Teach
You,” January 2009
“Commercial Chatter: Hits and
Misses,” March 2009
“Stay Close to the Capstone,”
view these articles and more
“The best service you can
provide your client depends
on understanding not just
what happened but why.”
The key is to stay calm when you receive the news, find out why the lender
turned the deal down and share the
news with your client as soon as you
hear it before you move on to your
Share the news
There’s no easy time or easy way to deliver the bad news to your client. The
best time, however, is as soon as you
learn the lender’s decision. Bad news
can’t wait; you have a professional obligation to inform your client right away.
You can gather the relevant details,
pass along what is important to your client and reformulate your game plan later.
But your client must know immediately.
If you’ve been in steady contact and
if you didn’t oversell the lender’s enthusiasm, your client should be able to
handle the bad news. Be prepared to
explain your backup plan so that you
can move on as soon as possible.
Blowing up at the person calling you
won’t help your cause. As hard as it is
to receive the bad news, it’s often just
as hard to deliver it.
So don’t make it worse — and don’t
burn your bridge to that funding source
— by yelling and screaming.
This also is a poor time to try to talk
the lender into reconsidering its decision. You definitely will not persuade it
to change its loan programs or underwriting guidelines just because your client needs this loan.
If the lender’s decision was based
on a mistake — either in the appraisal
or its analysis of the transaction — you
can and should make a solid case for
reconsideration. Most lenders want
to make loans. Several people typically will review a loan before a lender
reaches its decision.
Mistakes do happen, however. And
if this is one of those rare occasions in
which the lender’s decision is based on a
Have rents decreased in the market?
Although a property’s current tenants
may be paying enough rent to support
the requested loan amount, if market
rents have declined, most lenders will
underwrite to those. Your client’s loan
may not pencil out based on market
data, even if the current property cash
flows are enough.
It’s important to ensure that you have
everything in place when you submit
your client’s deal to your backup lender.
In the ideal loan-application process,
all the disparate elements move forward at about the same pace. These
include the lender, the applicant and
third-party service-providers, such as
appraisers, environmental specialists,
and title and escrow people.
Most commercial lenders will review
a preliminary loan-application package.
This can include a solid executive summary, a copy of the applicant’s loan application or lender’s application form,
an outline of the applicant’s successful
experience, and more.
Some lenders also want to see copies of the applicant’s federal business
and personal income-tax returns and
a credit report. Others will accept your
summary of three years’ tax returns.
The key is to present enough infor-
mation for the lender to decide to move
forward. Be sure to present all the
major issues and positive attributes
upfront. Loans can turn sideways if
the appraiser discovers something un-
known to the property seller or buyer
or the mortgage broker. Learn all you
can at the start of the process by com-
pleting your due diligence, including a
property inspection if possible.
• • •
Having your target lender turn down
your client’s deal is always disappoint-
ing. But it shouldn’t be discouraging.
If you take the time to understand
how and why the decision came to be,
you can use that knowledge to increase
your odds of success with the next
lender and future deals. •
Fred Hollister is senior vice president, director of commercial lending, for Global Fundings
Inc., a nationwide broker of institutional and
private-money commercial mortgages. He
has more than 25 years’ experience in all
aspects of income-property lending, having
been a commercial mortgage broker, bank
commercial loan officer, under writer, asset
reviewer and compliance officer. Reach him at
firstname.lastname@example.org or (510) 207-8333.