Is this the new normal for commercial RE lending?

[randallg99]

I think the price declines are very regional. There are parts of NJ that are stubbornly resiliant to the downturn while other areas are highly affected.

The areas where I think there is the most opportunity is in low end housing. It's not as ritzy as investing in higher quality properties, but the cash flow is tremendous.

I put in only 2 offers yesterday instead of 4. The areas are "tough" but after it's all said and done, I have a cash flowing machine. These 4 or 5 bedroom properties rent for $1300-1500 per month. After RE taxes, insurance and other expenses, I will make my initial investment back within 4 years.

These properties sold for 150k a few years back. My offers are 10k. I plan on spending 25k to fix them up to make them as water proof and indistructible as possible.

One of the properties countered me at 20k.... I'll settle for 15.

 

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[Chitown]

Banks can call the notes at any times, so it seems.

In the first case the note is due (probably a balloon and the note matured) and the bank does not want to make any extensions, they simply want the money or the property.

The other case is more interesting... a new note holder calling the note cause they probably want the property.

This second scenario makes wonder if I could buy a note for a property I want but is not in default, call it, and then foreclosure on it if the current owner does not cover the total amount after me calling it... hmmm.

Andviv,

It's called "loan to own", I believe. A Texas RE investment firm used that exact strategy to get its hands on some choice Beverly Hills property a couple of years ago.

 

[andviv]

Andviv,

It's called "loan to own", I believe. A Texas RE investment firm used that exact strategy to get its hands on some choice Beverly Hills property a couple of years ago.

Chitown, great to know...

I googled that term and found a lot of information, thanks a lot.

I am looking now for the financing for these properties I am targeting, should be a fun ride, I will either win or learn... we'll see.

Thanks again. Rep++

P.S. If you have more details on how it is done or contact info of people that has done it, I'd appreciate if you can share more. Thanks again.

 

[Chitown]

Chitown, great to know...

I googled that term and found a lot of information, thanks a lot.

I am looking now for the financing for these properties I am targeting, should be a fun ride, I will either win or learn... we'll see.

Thanks again. Rep++

P.S. If you have more details on how it is done or contact info of people that has done it, I'd appreciate if you can share more. Thanks again.

Andviv,

I'm glad I could help.

Unfortunately, I'm no expert. However, if I come across any more information or professionals in that arena, I'll definitely post about it/let you know. I wish you well with your strategy, although I think you'll be fine.

Also, Andviv, the rep speed is greatly appreciated. Thank you very much.

 

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[randallg99]

just an update. most of the offers I submitted were not countered but 2 of them responded. My offers of 10k cash are usually greeted with disgust, but there are some serious problems that some sellers need to rid of.

I put in 6 more offers yesterday on other properties.

To answer someone else's question (on this thread or another, I forget) about how to compensate realtors.

Sellers compensate the both the buyers and sellers agents out of the sales proceeds.

Problem with such low offers is that the realtors have to do a lot of work for just a few hundred bucks. But in my case, my agent will also get the selling listing agreement.

And her husband is a contractor who gets the majority of the work for the property. Just last month they made several thousand dollars from one of my properties (combining commission and contracting) so the incentive is there.

If you find resistance from agents who don't want to place endless low ball offers the I would recommend possibly obtaining a real estate sales license and make the offers yourself. It's very easy work that requires some faxing and constant follow up.

Good luck.

 

[Cat Man Du]

Hey Run.................here's an update!!

Geithner: Commercial real estate loans problematic

WASHINGTON – March 30, 2010 – Mounting losses from commercial real estate loans will continue to be a problem for the U.S. and especially smaller banks, but it can be managed, Treasury Secretary Timothy Geithner said Monday.

“Commercial real estate’s still going to be a problem for the country,” Geithner said in an interview with CNBC. “But we can manage through this process.”
Geithner also said the Treasury Department’s announcement that it will begin selling the stake it owns in Citigroup Inc., which could net about $7.5 billion to the government, shows “how far we’ve come” in exiting from the financial bailout program.

The government received 7.7 billion shares of Citigroup in exchange for $25 billion of the total $45 billion it gave the financial behemoth during the 2008 credit crisis. The Treasury Department said Monday it will sell the shares over the course of this year, depending on market conditions.
Like any investor, the government will likely hold on to its shares if prices fall steeply. However, Citi shares have been steadily rising with the broader market in recent months, which means the government is likely to pocket a hefty profit. O Boy!

The government has been trying to unwind the investments it made in banks under the $700 billion Troubled Asset Relief Program, or TARP, that came in at the height of the financial crisis.

Geithner said in the interview the government doesn’t want to keep an ownership stake in the financial companies “a day longer than necessary.”
The government will use a “careful process” to balance two objectives, he said: ensuring maximum return on the taxpayers’ investment while also getting the U.S. out of the business of owning private companies.

The government will use a “careful process” to balance two objectives, he said: ensuring maximum return on the taxpayers’ investment while also getting the U.S. out of the business of owning private companies.

On other subjects, Geithner:

• Affirmed the Obama administration’s recent optimism that an agreement can be reached with Republicans on legislation to bring sweeping new regulations to the U.S. financial system, opening the way to enactment possibly within months. “We’re getting close,” he said.

• Said the financial system “is in a much, much stronger position today” than it was three years ago in the run-up to the financial crisis; and the U.S. economy has recovered from the crisis faster than those of other countries. Major U.S. financial institutions have far stronger capital positions than they did three years ago, though many of them still face daunting challenges, he said.

While losses on mortgage loans socked banks at the beginning of the 2008 financial crisis, it is commercial and development loans that have brought dramatic losses for banks in recent months. Ahhhh...so whats coming?

Losses have mounted on loans for commercial projects like stores and office complexes, as buildings sit vacant and builders default. Many midsize and regional banks hold large concentrations of those loans.
U.S. banks face as much as $300 billion in losses on loans made for commercial property and development, according to the Congressional Oversight Panel, which monitors the government’s efforts to stabilize the financial system.

Sheila Bair, the head of the Federal Deposit Insurance Corp., has said that losses on commercial real estate loans are expected to be the primary cause of bank failures this year, which are likely to exceed the 140 collapses in 2009. [COLOR="Red"]Uh oh...here it comes ![/COLOR]

Copyright © 2010 The Associated Press, Marcy Gordon, AP business writer. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

 

[Runum]

The latest news in this saga:

Wachovia Bank calls off foreclosure of Village at Camp Bowie | Business | Dallas Busines...

 

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[randallg99]

another update: my realtor got very sick and I'll be reinstating my real estate license to pursue properties. Several of my offers actually got countered but I didn't bother responding until they become more realistic.

The 2nd wave of foreclosures are about to hit the market this year.

The only monkey wrench thrown into my theory is inflation. If inflation kicks in, then real estate should hypothetically jump in price.

BUT we see lowest mortgage rates on record and...
we see amazing available inventory for buyers and...
we have government incentive to buy properties and...
home vacancy rate in USA exceeding 10% and...
among other reasons to the contrary, prices are still dropping.

if you can buy at fire sale pricing, collect rent and wait a few years, then you've hit the motherlode.

 

[andviv]

randall, great points.

Are you going after SFHs, commercial and/or apartment buildings?

 

[randallg99]

randall, great points.

Are you going after SFHs, commercial and/or apartment buildings?

hi,

I am buying SFHs at this point.

Most commercial and apartment building owners have deep pockets to sustain the downturn but that's not to say if lenders continue to hold their current stance that there will be future bargains to be had.

With SFHs, I figure i might as well buy an average home, make it the nicest in the neighborhood and then sell it for below market value so I can make nice pocket change. The best part is the gov't is throwing money at these buyers.

To further answer your question, I placed several offers on large properties but they never came to fruition. I don't know if owners are playing hard ball with banks but I know for fact the properties I bidded on were in distress.

Right now in my region the value is in SFH so that's where I'm making lunch money.

 

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[andviv]

Randall, thanks for your post...

I agree with you in the buy-sell approach.

I do think apt bldg owners are hurting... I know of a few who have actually said so. Thing is, it seems many lenders are not foreclosing on them, so they can simply wait and see what happens.

In my case, I know I don't want to hold SFHs. Multis should be OK to hold if the numbers and market are there when buying at deep discounts... but I don't want to buy-hold SFHs for sure.

 

[randallg99]

It turns out that I was wrong in the post a couple of weeks ago believing that the commercial lenders cannot reclassify a loan until reset period.

If a lender follows through with an appraisal and finds the property valued below the loan amount, the lender at that point in time, regardless of term, can deem that property in default even if the loan still has many years left in its term.

The owner has two options: pay down the mortgage to the appraised value or refinance with another lender.

The obvious problem with refinancing is lenders are not willing to take on debt that exceeds the collateral. And it goes one step further: the feds will not allow lenders to take upside down loans.

Every now and again I see/hear kids say "FML" but little do they know what it's really like.

 

[andviv]

Good to know, thanks for finding about this and mention it here. Rep+

How did you find out about this?

Now, it kinda sounds weird to try to call a performing loan in today's market. Why would you want to foreclose on a property like this and then keep it in your books for long, destroying any value the note may still have?

 

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[Guest3722A]

From my experience as a novice commercial loan broker, I was able to accumulate over $30 million of local commercial loan requests in a very short time, but couldn't find a lender in this current economy outside of hard bridge money to take anything serious in the State of Michigan. And it's really too bad because the majority would've qualified with adequate dscr, and even some with 800+ fico's in the past, but as was said here, the drop in value of recent has been the inhibiting factor.

For anyone who may be interested and could perhaps use this bit of info, I did find a lender who was highly interested in one of my deals because one of the businesses that was operating within his mixed-use building had a long-term government contract that outlasted the 5yr term I was trying to get, which seemed to give the lending agency a sense of ease.

 

[Cat Man Du]

Randallg said:

It turns out that I was wrong in the post a couple of weeks ago believing that the commercial lenders cannot reclassify a loan until reset period.

If a lender follows through with an appraisal and finds the property valued below the loan amount, the lender at that point in time, regardless of term, can deem that property in default even if the loan still has many years left in its term.

The owner has two options: pay down the mortgage to the appraised value or refinance with another lender.



STICKY QUESTION

Several of us have SFH's that we would love to re-fi into the lower interest rates offered today. PROBLEM ...... some of these WILL NOT appraise for the same price as we paid for them at the time.. QUESTION.... Has anyone had the bank appraisal and been called because it's worth less than the mtg. as they are doing in commercial??

 

[LagunaLauren]

Randallg said:
It turns out that I was wrong in the post a couple of weeks ago believing that the commercial lenders cannot reclassify a loan until reset period.
QUESTION.... Has anyone had the bank appraisal and been called because it's worth less than the mtg. as they are doing in commercial??

Bank of America (!!%#**!?!) keeps jerking me around on a couple of my loans on my higher-end properties. (They got them from Countrywide). They send out letters saying I have to pay several thousand $$ in less than a week and agree to pay more every month (same interest rate and loan amount, but they conveniently bumped up the term time frame to make my payment 1/4 higher) or they will call the note due. I can't talk to anyone about it who has any decision-making ability, so my hands are tied. They keep telling me the decision for a higher payment has been based on what they believe I can pay based on my finances. (??? Seriously?!!!?). I have done this, paid $$$ more in certified funds and notarized their ridiculous terms, then they change it again. Just got another threatening letter again demanding another additional $5k above normal payments by the end of this month or they will call the note due. I'm about ready to let the damn thing go back to B of A even though I'm current out of principal just cause I can't stand this extortion. (I won't really let it go into foreclosure, but I'm so sick of this CRAP! B of A SUCKS!!) OK--rant over. whew...

Anybody here want to buy some notes?? :smxB:

 

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[andviv]

somebody said 'buy notes'? we are all ears....

About the letters, call their bluff. Let them call the note due.

Is it under your personal name and your SSN?

 

[LagunaLauren]

Yeah, unfortunately, this property is under my SSN. I've never let a property go. Wouldn't do that anyway. thx tho.

 

[MJ DeMarco]

Bank of America (!!%#**!?!) keeps jerking me around on a couple of my loans on my higher-end properties. (They got them from Countrywide). They send out letters saying I have to pay several thousand $$ in less than a week and agree to pay more every month (same interest rate and loan amount, but they conveniently bumped up the term time frame to make my payment 1/4 higher) or they will call the note due. I can't talk to anyone about it who has any decision-making ability, so my hands are tied. They keep telling me the decision for a higher payment has been based on what they believe I can pay based on my finances. (??? Seriously?!!!?). I have done this, paid $$$ more in certified funds and notarized their ridiculous terms, then they change it again. Just got another threatening letter again demanding another additional $5k above normal payments by the end of this month or they will call the note due. I'm about ready to let the damn thing go back to B of A even though I'm current out of principal just cause I can't stand this extortion. (I won't really let it go into foreclosure, but I'm so sick of this CRAP! B of A SUCKS!!) OK--rant over. whew...

Anybody here want to buy some notes?? :smxB:

Borderline legal extortion, un FN believable. Reading this makes me want to close every account I have with BofA. I hope you can work it out.issed:

 

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[LagunaLauren]

Thanks for the support, MJ! I don't typically complain or focus on the negative, B of A just gets under my skin. Fair warning to others out there. Avoid B of A at all costs...

 

[randallg99]

Randallg said:

It turns out that I was wrong in the post a couple of weeks ago believing that the commercial lenders cannot reclassify a loan until reset period.

If a lender follows through with an appraisal and finds the property valued below the loan amount, the lender at that point in time, regardless of term, can deem that property in default even if the loan still has many years left in its term.

The owner has two options: pay down the mortgage to the appraised value or refinance with another lender.



STICKY QUESTION

Several of us have SFH's that we would love to re-fi into the lower interest rates offered today. PROBLEM ...... some of these WILL NOT appraise for the same price as we paid for them at the time.. QUESTION.... Has anyone had the bank appraisal and been called because it's worth less than the mtg. as they are doing in commercial??

Have you considered getting your own appraisal before approaching banks for refi?

Bank of America (!!%#**!?!) keeps jerking me around on a couple of my loans on my higher-end properties. (They got them from Countrywide). They send out letters saying I have to pay several thousand $$ in less than a week and agree to pay more every month (same interest rate and loan amount, but they conveniently bumped up the term time frame to make my payment 1/4 higher) or they will call the note due. I can't talk to anyone about it who has any decision-making ability, so my hands are tied. They keep telling me the decision for a higher payment has been based on what they believe I can pay based on my finances. (??? Seriously?!!!?). I have done this, paid $$$ more in certified funds and notarized their ridiculous terms, then they change it again. Just got another threatening letter again demanding another additional $5k above normal payments by the end of this month or they will call the note due. I'm about ready to let the damn thing go back to B of A even though I'm current out of principal just cause I can't stand this extortion. (I won't really let it go into foreclosure, but I'm so sick of this CRAP! B of A SUCKS!!) OK--rant over. whew...

Anybody here want to buy some notes?? :smxB:

You're not alone. Horror stories just keep swirling around bank of America's mortgage departments. There's 10's of thousands of posts here:
Bank of America Sucks • Index page


what was BofA's justification for increasing the payment? did you have a variable loan?

Only suggestion I can think of is to consult an attorney.

 

[randallg99]

Good to know, thanks for finding about this and mention it here. Rep+

How did you find out about this?

Now, it kinda sounds weird to try to call a performing loan in today's market. Why would you want to foreclose on a property like this and then keep it in your books for long, destroying any value the note may still have?

I found out the hard way.

And, recently mandated federal regulations are breaking the banks balls to the point regulators are looking over their shoulders every step of the way.

 

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[LagunaLauren]

what was BofA's justification for increasing the payment? did you have a variable loan?

Only suggestion I can think of is to consult an attorney.

Don't have a variable loan. Bank of America kept the same interest rate and loan amount, but bumped up the term to make my payment 1/4 higher. Their justification was that they came up with that increased amount "based on my finances and on my ability to pay"; so essentially because I make a good deal of money, they arbitrarily increased my loans. 4 of them.

I did consult my attorney. He said we could sue, but would cost me a lot and doubtful that the outcome wold be in my favor. Until new laws are passed, they can kinda do what they want. Thanks for the suggestions, tho..

 

[Cat Man Du]

STICKY QUESTION

Several of us have SFH's that we would love to re-fi into the lower interest rates offered today. PROBLEM ...... some of these WILL NOT appraise for the same price as we paid for them at the time.. QUESTION.... Has anyone had the bank appraisal and been called because it's worth less than the mtg. as they are doing in commercial??

Randall said:

Have you considered getting your own appraisal before approaching banks for refi?

Sadly...they will only accept their own!

 

[randallg99]

STICKY QUESTION

Several of us have SFH's that we would love to re-fi into the lower interest rates offered today. PROBLEM ...... some of these WILL NOT appraise for the same price as we paid for them at the time.. QUESTION.... Has anyone had the bank appraisal and been called because it's worth less than the mtg. as they are doing in commercial??

Randall said:

Have you considered getting your own appraisal before approaching banks for refi?

Sadly...they will only accept their own!

can you get a list of the licensed appraisers and simply hire one of them to do the appraisal?

Don't have a variable loan. Bank of America kept the same interest rate and loan amount, but bumped up the term to make my payment 1/4 higher. Their justification was that they came up with that increased amount "based on my finances and on my ability to pay"; so essentially because I make a good deal of money, they arbitrarily increased my loans. 4 of them.

I did consult my attorney. He said we could sue, but would cost me a lot and doubtful that the outcome wold be in my favor. Until new laws are passed, they can kinda do what they want. Thanks for the suggestions, tho..

They're bluffing. It's a game of chicken with a lot on the line.

BofA is desperate for cash.

I am not an attorney and I obviously haven't read your mortgage documents but I am not sure how they can legally change your terms on a residential fixed mortgage. No need to sue but what happens if you just continue your payments as you agreed when you signed?

 

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[Russ H]

Bank of America (!!%#**!?!) keeps jerking me around on a couple of my loans on my higher-end properties. (They got them from Countrywide). They send out letters saying I have to pay several thousand $$ in less than a week and agree to pay more every month (same interest rate and loan amount, but they conveniently bumped up the term time frame to make my payment 1/4 higher) or they will call the note due. I can't talk to anyone about it who has any decision-making ability, so my hands are tied. They keep telling me the decision for a higher payment has been based on what they believe I can pay based on my finances. (??? Seriously?!!!?). I have done this, paid $$$ more in certified funds and notarized their ridiculous terms, then they change it again. Just got another threatening letter again demanding another additional $5k above normal payments by the end of this month or they will call the note due. I'm about ready to let the damn thing go back to B of A even though I'm current out of principal just cause I can't stand this extortion. (I won't really let it go into foreclosure, but I'm so sick of this CRAP! B of A SUCKS!!) OK--rant over. whew...

Anybody here want to buy some notes?? :smxB:

Lauren-

I just want to clarify:

So you have, say, a note for $1 million, 30 years, at 5% interest.

And they are telling you the note is STILL for $1 million, at 5%, but the term is now 20 years?

In essence, is that correct?

(and, did you tell them this was investment property? or that all were personal residences?)

BTW, I'm assuming you've actually now re-read your contracts-- was this provision in there? (it would not surprise me if it was-- BofA is notorious for putting in stuff like this, and hoping the mortgagee doesn't notice).

-Russ H.

 

[LagunaLauren]

Lauren-

I just want to clarify:

So you have, say, a note for $1 million, 30 years, at 5% interest.

And they are telling you the note is STILL for $1 million, at 5%, but the term is now 20 years?

In essence, is that correct?

(and, did you tell them this was investment property? or that all were personal residences?)

BTW, I'm assuming you've actually now re-read your contracts-- was this provision in there? (it would not surprise me if it was-- BofA is notorious for putting in stuff like this, and hoping the mortgagee doesn't notice).

-Russ H.

Yep-exactly that. Same loan amount and fixed rate. They bumped up the time frame to make my payment much higher. They know these are non-owner occupied investment properties-I have 8 mortgages with them. There was no provision in my original contract with countrywide for them to pull this kinda crap, but B of A is making up their own rules as they go along.