a Accepts packages from brokers and correspondents. Call before sending.
b Only accepts packages through approved brokers/correspondents
c Wholesale pricing is available to brokers/correspondents
d Wholesale pricing is only available to correspondents
e Wholesale pricing is available to approved brokers
f Will collect fee for brokers/correspondents
g Par pricing is available to brokers
LOAN SUBMISSION CRI TERIA
LOAN T YPE / PURPOSE
1 Apartments
2 Apts. over retail
3 Assisted living
4 Boarding houses
5 Corp. apartments
6 Garden apartments
7 High-rise apartments
8 Historic property
9 Lofts
10 Low-income
11 Senior housing
12 Student housing
17 Foreclosure
avoidance loans
(or NOD)
18 Forward
commitments
19 Joint ventures
20 Mezzanine
21 Nonrecourse loans
22 Remodel/renovation
23 Third TDs
COMPANY NAME
Submission
Criteria 1 2 3 4 5 6 7 8
9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
DSCR LTV
Max%
Max
$
Min
24 25 26 27 28
24 Fannie Mae DUS
25 Freddie Mac:
Program Plus
26 HUD loans
27 Securitized
mortgage
programs
28 Private money
LOAN CRITERIA
LOAN PROGRAMS
Amounts
display
Redwood Mortgage
YYY
YYYYYYYYYY
YY
Y
100K 2M 65 1.1
800-659-6593
a,f
CA
Y
CA metro areas preferred. No prepayment penalty. Brokers protected. www.redwoodmortgage.com
display
Seattle Funding Group Ltd.
888-SFG-FUND (734-3863)
a,f
YY YYYYY YYY YY 250K 6M 65 Y
AK CA CO HI ID NV OR TX UT WA Direct portfolio lender. Never a prepayment penalty. For California properties, contact the San Diego
office at 858-751-0556. www.sfgfunds.com
2M none 80 1.2
YY
Outside U.S. minimum loan amount $10M
display
Union Bank
YY
YYYYYYYYY
YY
400K 5M 75
800-463-0687
CA DC MD OR TX VA WA
Portfolio lender with in-house approval authority
Tell lenders you found them in Scotsman Guide
Criteria
LTV Max Min 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 DSCR
Scotsman Guide makes every attempt to ensure the quality of matrix and directory information, which all listed lenders verify or update monthly. Because of the production cycle and dynamic nature of the industry, loan product
terms and availability may not reflect the latest changes. Please contact lenders directly for the most-recent program details. If you believe data is inaccurate or misrepresented, please e-mail: matrixfeedback@scotsmanguide.com.
questions may include:
• why should i factor in vacancy
when the property is 100 percent
occupied?
• why should i factor in management
fees if I manage the property myself?
• why should i factor in management
fees for a triple-net-lease property in
which the tenant is responsible for all
expenses and management?
The answers to these questions are
simple: Lenders view loans from a
worst-case-scenario perspective, i.e.,
if the borrower defaults and the lender
has to manage and own the building. If
the lender had to take over an investment property, they would have to
hire a management company,
either because
the property is
out of their local
area, out of their
area of expertise
or both. In addition,
if the borrower defaults
and/or the tenant went out of
business, they would have to lease the
property at market conditions, so they
must factor in market vacancy.
Understanding what the lender uses
for holdbacks before you submit your
loan package can help you prescreen
deals and save precious time for yourself and your client.
To further illustrate the impact of
holdbacks on investment property,
check Tables 3 and 4 on Page 22. Table
3 illustrates a deal for an investment
« DETAILS continued from page 22
property without factoring in any holdbacks. It seems like a solid, bankable
deal, with a DSCR at 1.48 and net operating income (NOI) of $66,764.
Table 4 provides the same deal with
conservative holdbacks: 10 percent
market vacancy, 4 percent management
fees, and 2 percent interest reserves.
As a result, the cash flow drops consid-
erably to an NOI of $53,912. The DSCR
drops to 1.19, below what many lenders
consider a fundable transaction.
Commercial mortgage brokers
should try to understand from their
lenders how holdbacks are calculated
in the underwriting before submit-
ting a loan package. Although there
may not be a set policy, loan officers
should be able to provide insight
into the process. Make sure you
factor in some of these un-
derwriting holdbacks, or
you may be setting your
deal up for failure.
4. Cap-rate maximums
Commercial mortgage brokers also
should keep in mind that some banks
have an absolute maximum capitalization rate that they use regardless of
the appraisal.
For example, say a seller and a
buyer agree to a purchase price of
$4 million for an investment property.
The sale price is based on a market
cap rate of 7 percent with an NOI of
$280,000, and the buyer is planning
on a cash downpayment of 35 percent,
or $1,400,000.
If the bank’s maximum cap rate is
8 percent, however, the property’s
value goes down by $500,000 to
$3,500,000. In addition, if the lender’s
maximum loan-to-value is 65 percent
(of the lower of the appraised value
or purchase price), this could mean
the maximum loan amount the lender
will offer is $2,275,000 — 65 percent
of $3,500,000.
You and your client will have to find
a solution for this problem. Options include: the seller reducing the purchase
price by $500,000; the buyer coming in with additional money (in
this example $1,725,000 versus $1,400,000); or some
combination of the two. Otherwise, you have a dead deal
— which unfortunately is the most
likely scenario. This is why brokers must know if there is a set
maximum cap rate before they
submit any transaction.
5. Interest-rate stress-tests
Interest-rate stress-testing refers to the
practice of using an interest rate on
cash-flow analysis that is higher than
what the borrower actually will pay on
their loan. For example, a borrower may
agree to a 5 percent interest rate on the
loan itself, but the underwriter uses
7 percent in performing the cash-flow
analysis. The loan would have to meet
the typical DSCRs based on the higher
rate to get approved.
Many lenders have an internal pol-
icy regarding whether, and how, they
stress-test interest rates in the under-
writing process. Your role is to learn as
much as possible about the policy —
particularly if your loan request has low
cash flow.
• • •
Having a solid grasp of the details
of the underwriting process will help
commercial mortgage brokers pick
the best lenders for their deals. By
knowing if a deal is likely to make it
through the underwriting process —
or if it will get caught up by one of
these five details — brokers can en-
sure a smoother journey for their cli-
ents, as well as better profitability
for themselves. This knowledge may
lead to more positive relationships
with clients, in addition to improved
closing ratios and income. •
