Loan Modification

As you know…Commercial Loans decline for many reasons. Credit, Equity, Cash Flow can all cause issues in underwriting. When a finance request is declined, most brokers/lenders simply throw it away.

Commercial Modification or Debt Restructuring

is a solution that helps the borrower by re-working the loan with the current lender to keep the property from going into foreclosure.

Banks realized during the great recession, as did the federal government, that if they did not modify these loans, they will default causing a tsunami of debt, bank failures, increased unemployment and financial chaos on wall street. The same holds true now dealing with COVID-19.

The Federal Government Enacted The “Cares Act”, that among other fixes reduced tax liability for investors of CMBS loans who work to modify those loans in distress and loosening the language for what is in fact a “distressed” loan. All banks (100%) have a “special servicing” department or third party that analyzes and re-works non-performing loans to keep them from default.

Commercial loans come in two primary forms.

Portfolio Loans…

A Portfolio loan is a commercial loan done by the lender directly “on balance sheet”, meaning with their own money. They maintain and service the loan after closing.

CMBS…

Commercial Mortgage-Backed Securities loans are commercial loans provided by Conduit lenders (lenders who finance the loan and sell it after) which are later pooled together and sold as a security (Bond). These loans are later serviced by a Master Servicer who collects payments and handles day to day customer needs.

What is important to remember here is that a portfolio loan modification is negotiated directly with the bank/lender who originated the loan and services it now. A CMBS modification is negotiated with the Master Servicer and then moved to a “Special Servicer” who has the legal authority to negotiate a modification of the original terms under the REMICs rules.

Commercial Mod / Workout Scenario There is No Closing.

The bank simply receives the workout package and sends to underwriting (a special servicing department). They then send the borrower a “Modified” agreement for the current loan. Thus, commercial modifications help both the borrower and lender while saving a relationship that might have been discarded.

Loan modifications can be complicated and complex. You need an expert who can correctly put together the loan package and present it to the lender for approval. Contact us today to learn more about how Whitmire Financial can help.

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