refinancing

Apache is functioning normally

Since the Making Home Affordable Program was launched in early March, more than one million borrowers have refinanced and 55,000 loan modification offers have been extended to qualifying borrowers.

Of course, most are simply refinancing due to the low mortgage rates on offer, helped on by Treasury buying of Fannie Mae and Freddie Mac mortgage-backed securities, which was part of the original Homeowner Affordability and Stability Plan.

Additionally, Fannie Mae has more than 233,000 eligible Home Affordable Refinance applications, with 51,000 having loan-to-value ratios between 80 percent and 105 percent.

“In just over two months, the Make Home Affordable program is up and running, helping our economy recover and making a difference in the lives and livelihoods of thousands of American homeowners,” said Treasury Secretary Tim Geithner, in a statement.

“Today we are announcing a new program component to help homeowners obtain modifications in areas suffering from home price declines.  If a modification is not possible, we are also announcing steps to encourage the quick private sale or voluntary transfer of property, which will save homeowners money and protect their financial future.”

In other words, qualifying borrowers unable to complete a MHA modification will be able to pursue a short sale or deed-in-lieu of foreclosure via a streamlined process.

Meanwhile, mortgage lenders will receive so-called “home price decline protection incentives,” compensation payments based on recent home price declines intended to facilitate more modifications in hard-hit areas of the country.

“Together the incentive payments on all modified homes will help cover the incremental collateral loss on those modifications that do not succeed.  HPD P payments will be linked to the rate of recent home price decline in a local housing market, as well as the average cost of a home in that market.”

The Home Affordable Refinance program ends in June 2010, while the loan modification program will run from now until December 31, 2012 (loans can only be modified once).

“Fourteen servicers, including the five largest, have now signed contracts and begun modifications under the program.  Between loans covered by these servicers and loans owned or securitized by Fannie Mae or Freddie Mac, Home Affordable Modification participants now account for more than 75 percent of all loans in the country.”

Source: thetruthaboutmortgage.com

Apache is functioning normally

The stock market took a hit yesterday with the Dow setting a record for most points dropped in a single day. With the flight to safety from investors, the bond market rallied, pushing the yield lower on the 10-year Treasury note.

Mortgage rates, which are closely tied to the 10-year yield, similarly moved lower. Read on for more details.

Where are mortgage rates going?                      

Treasury yields move back up today

Unless you live under the proverbial rock, you know that the stock market got slammed yesterday, with the Dow falling by more points (1,175) than any day in its existence.

Click here to get today’s latest mortgage rates (Jul. 22, 2023).

Naturally, there has been a lot of commentary on the matter (with the two leading theories being increasing inflation and a faster tightening schedule from the Fed) but the reality of the situation is that nobody really knows exactly why it happened.

Short term corrections aren’t anything out of the ordinary, so while they do create quite a fuss on Wall Street, there’s no need to go into a full panic. The fact that no one truly knows everything about what’s happening is made clear when you look at all of the various predictions for what will happen next.

There are basically two camps out there: those that think the decline will continue, and those who don’t. Right now, it’s kind of a mix, with bond yields rising and mixed results in the stock market.

The yield on the 10-year Treasury note, which is the best market indicator of where mortgage rates are going, is up a little over four basis points since the start of the day, putting it at 2.75%. That’s still down from yesterday’s peak of 2.88%.

Mortgage rates typically move in the same direction as the 10-year yield and similarly moved lower yesterday only to retreat back up slightly today.

Where we go from here is really anyone’s guess. There’s not a lot of economic data out the rest of the week to sway investors in one direction or the other.

Rate/Float Recommendation            

Lock now while rates are down on the week

Mortgage rates are down on the week, which is great news for borrowers. If you’re thinking of purchasing or refinancing, now is the perfect time to lock in a rate. The long-term projection is for mortgage rates to rise so taking action sooner rather than later is likely to get you the better deal.

Click here to head to our Mortgage Builder and figure out how much you could save.     

Today’s economic data:                                

International Trade  

The nation’s trade deficit widened to $53.1 billion in December. That’s more than the $51.9 billion that analysts had predicted.

Fedspeak  

  • St. Louis Fed President James Bullard at 8:50am

JOLTS  

The Labor Department’s latest data is showing 5.811 million job openings in December.

Get the GreenLight and close in 21 days*      

Notable events this week:               

Monday: 

  • PMI Services Index
  • ISM Non-Mfg Index

Tuesday:    

  • International Trade
  • Fedspeak
  • JOLTS

Wednesday:      

  • Fedspeak
  • EIA Petroleum Status Report
  • 10-Yr Note Auction

Thursday:        

  • Fedspeak
  • Jobless Claims

Friday:       

*Terms and conditions apply.

Carter Wessman

Carter Wessman is originally from the charming town of Norfolk, Massachusetts. When he isn’t busy writing about mortgage related topics, you can find him playing table tennis, or jamming on his bass guitar.

Source: totalmortgage.com

Apache is functioning normally

Lite Doc, Efficiency, 40-Year, HELOC Products; FHA, VA, USDA, HECM Agency and Investor News

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Lite Doc, Efficiency, 40-Year, HELOC Products; FHA, VA, USDA, HECM Agency and Investor News

By:
Rob Chrisman

8 Hours, 1 Min ago

Isn’t ice cream a great food!? In fact, I worked in an ice cream plant in my early 20s. Did you know that Moose Tracks ice cream was named for a miniature golf course in Michigan’s Upper Peninsula? Thank you to Carla M. who reminded me that July is National Ice Cream Month with an article on the top flavors. It is fortuitous that chocolate and ice cream met, as many of the most popular flavors have it. I know for a fact that mortgage attorney Brian Levy’s favorite ice cream is the uncommon rum raisin, although his latest piece has no relation to it whatsoever. Brian Levy’s most recent Mortgage Musing covers crowdsourced housing policy, professionalism, conflicts of interest in affiliated business arrangements, and whether doctor body cams are a good idea (spoiler alert: no). If you want to be “a-mused” while learning something about the mortgage business, subscribe to Levy’s Musings (it’s free and he promises he won’t sell your email address). (Today’s podcast can be found here and this week’s is sponsored by Richey May, a recognized leader in providing specialized advisory, audit, tax, technology and other services to the mortgage industry for almost four decades. To experience how Richey May can help you transform your mortgage business, visit richeymay.com. Hear an interview with TD Bank’s Scott Lindner on first time homebuyer programs and advice.)

Lender and Broker Products, Services, and Software

“With Summer in full swing, we know that your clients may be looking for the financial flexibility to make improvements around the home, financially prepare their recently graduated senior for college, or even just stabilize their monthly debt payments. And they are looking to do so as affordably as possible. At Symmetry Lending, our HELOC rates are considerably lower than many credit cards and other HELOC providers, and we’re ready to help your clients make the most out of their money. Let us help you win and keep more business with our financially conscious HELOC offerings. Get in touch with Symmetry’s experts to learn more!”

Great News! Carrington Wholesale and Correspondent have introduced two game-changing product improvements. The first is a 40-year loan term option for fixed-rate and fixed-rate Bank Statement Non-QM Loans. Borrowers benefit from lower monthly payments and increased purchasing power, perfect for real estate investors seeking enhanced cash flow. The second is a Temporary buydown programs for FHA, VA, and Conventional purchase loans. Borrowers enjoy reduced payments for 1, 2, or 3 years, depending on the buydown type. Discover more at CarringtonWholesale.com and CarringtonCorrespondent.com. Explore the perfect loan solutions for your borrower’s unique financial needs!

NEW EBOOK: The Essential Guide to Lending Efficiency. Today, labor makes up more than 50 percent of the cost to close a loan. That’s why it’s vital to boost your team’s productivity. In this eBook, mortgage solutions provider Maxwell lays out 4 vital steps to maximize efficiency without increasing overhead. From eliminating bottlenecks to thoughtfully automating busy work, these actions will transform your lending process and profitability. Want to create a nimble lending team that produces top borrower experiences and reduces leakage? Click here to download Maxwell’s free eBook, “The Essential Guide to Lending Efficiency.”

Working with self-employed borrowers? You’re probably already utilizing a bank statement program, but have you familiarized yourself with Lite Doc programs? Join us on Wednesday, August 2 at 2:00 pm ET / 10:00 am PT for a DealDesk session focused on Quontic’s Lite Doc Program, presented by National Mortgage Professional. This interactive forum provides brokers and originators with the opportunity to share real deals and scenarios. Quontic Wholesale, a bank with CDFI status, offers unique income validation methods for its owner-occupied and investor Lite Doc programs. The program eliminates the need for tax returns or W2s and accepts 100 percent gift funds for down payment and closing costs. It allows one year of self-employed income and loan amounts up to $3,000,000 with up to 80 percent LTV and 50 percent DTI. Cash-out proceeds can be used towards reserves, and the program is available for various property types. Register here to present your deals and ask questions about Quontic’s Lite Doc program.

FHA, VA, USDA, HECM (reverse), Ginnie News

Government products account for about 25 percent of applications and business. Let’s see who’s doing what.

What does the Veteran’s Administration tells vets about cash-out refinancing? Here you go: Cash-Out Refinance Loan | Veterans Affairs (va.gov).

Ginnie Mae announced the expansion of its low-to-moderate income (LMI) disclosure initiative to include loan-level pool data for U.S. Department of Agriculture, Rural Housing Service (USDA-RHS) loans. This pool level borrower income data will be used in Ginnie Mae’s Mortgage-Backed Security Level “LMI Income” disclosure. Ginnie Mae has been working to enhance its LMI disclosures, beginning with LMI geographic information two years ago and the addition of LMI income earlier this year. These disclosures are an integral part of Ginnie Mae’s inherent social and environmental mission, and align with increased environmental, social and governance (ESG) considerations from our mortgage-backed securities (MBS) investors.

The Fiscal Year 2023 income limits for the Single Family Direct Loan and Grant Programs were published on July 13, 2023 through Procedure Notice 587. The Guaranteed Underwriting System (GUS) and the Income Eligibility calculator on the Eligibility Website have been updated with the new income limits. The income limits were updated in the impacted websites and systems (e.g., UniFi and Section 502’s Self-Assessment tool). The following automated worksheets were also updated. Section 502 – Worksheet for Computing Income and Maximum Loan Calculator (as found on the Direct Loan Application Packagers pages). Section 504 – Automated Worksheet (as found on the Single Family Housing Repair Loans & Grants page (under the ‘To Apply’ tab).

The Federal Housing Administration (FHA) posted additional translated materials to its recently launched Language Access Resources web page, including the HUD-92564-CN, “For Your Protection, Get a Home Inspection” form and the “Dispelling Homebuying Myths” four-part presentation series to help increase awareness and understanding of the homebuying process. The Dispelling Homebuying Myths series includes presentations on: Finding the Right Home; Qualifying for a Loan; Tips for Buying Your First Home; and Affording a Home.

FHA Mortgagee Letter (ML) 2023-15, considered industry feedback received on the draft ML posted on the Single Family Drafting Table and announced in FHA INFO 2023-41, implements changes to the processes FHA employs for instances of anticipated or actual default of a mortgagee’s disbursement obligations to a HECM borrower. The policies are designed to improve FHA’s ability to make prompt payments in the event of mortgagee default, ensuring that HECM borrowers receive scheduled or requested funds in a timely manner.

Ginnie Mae’s mortgage-backed securities (MBS) portfolio outstanding grew to $2.422 trillion in June, including $39 billion of total MBS issuance, leading to $18 billion of net growth. Issuance for this month was significantly higher than May’s $34 billion as well as April’s $33 billion. For more information on monthly MBS issuance, UPB, REMIC monthly issuance, and global market analysis, visit Ginnie Mae Disclosure.

Carrington Correspondent USDA Price Improvement, 25 BPS in Price on Purchase Loans.

The future of reverse is there: The population aged 65 and older is projected to reach about 80.8 million by 2040, more than twice as many as in 2000, according to The Administration for Community Living. And with the median income of older persons at $26,668 in 2020, rising living costs and out-of-pocket healthcare expenses are inevitable for this fast-growing population. Maximize your senior clients’ potential for financial freedom by taking advantage of the benefits of reverse mortgages. The Plaza Home Mortgage® reverse team can help guide you through the process, whether you’re new to the reverse market or adding more reverse into your business strategy.

Capital Markets

Even as Freddie Mac reported yesterday that mortgage rates dropped from the prior week’s year-to-date highs after tame inflation reports last week, the combination of data, damaged technicals, and nervous markets ahead of next week’s central bank meetings saw the 10-year yield surge to its highest level in over a week. Market participants are at odds with the Fed once again with unemployment remaining at half-century lows as inflation cools. It’s still unclear if Fed tightening has tamed inflation, but some Fed members are calling for two additional 25 basis points rate hikes before year end, something the markets don’t have priced in. Monetary policy works with a long lag time, and rather than the Fed looking at early indicators like future inflation and commercial leasing activity, the Federal Open Market Committee (FOMC) has been focused on the lagging economic indicator of jobs.

Speaking of early indicators, we learned yesterday that the Index of Leading Economic Indicators fell again in June, fueled by gloomier consumer expectations, weaker new orders, an increased number of initial claims for unemployment, and a reduction in housing construction, according to the Conference Board. The Leading Index has been in decline for fifteen months, the longest streak of consecutive decreases since 2007-08 during the runup to the Great Recession. June’s data suggests economic activity will continue to decelerate in the months ahead due to elevated prices, tighter monetary policy, harder-to-get credit, and reduced government spending.

True, rates dropped over the last week, but the overall recent uptick in mortgage rates is clearly weighing on the resale market. Total existing home sales declined 3.3 percent to a 4.16-million-unit pace in June as the monthly median sales price ($410,200) reached its second-highest amount ever. Sales dropped by 18.9 percent from one year ago to 1.08 million at the end of June, with the inventory of unsold existing homes (3.1 months’ supply at the current monthly sales pace) unchanged from the previous month. Even if rates were 0 percent, if there are no homes to buy, sales are going to drop.

Though today is Class D 48-hours for those that need to announce specific MBS involved in the trade before the settlement, there are no economic data points today, and we begin the day with Agency MBS prices roughly unchanged from Thursday afternoon, the 10-year yielding 3.84 after closing yesterday at 3.85 percent, and the 2-year at 4.85: the yield curve inversion is alive and well.

Employment and Transitions

“Chelsea Vonder Haar, Senior Vice President of Marketing for USA Mortgage, has been named a 2023 marketing leader by HousingWire.com. Vonder Haar has risen through the ranks over her 10-year history with USA Mortgage. Taking the reins of the marketing team in 2017, she spearheaded dramatic growth via a cutting-edge marketing strategy, helping evolve USA from a local lender to a national operation licensed in 49 states. USA Mortgage is a full-service mortgage bank known for its unmatched marketing options for their loan officers and real estate agents, helping them effectively reach more clients. Today, Vonder Haar’s award-winning group of 17 marketing professionals offers lead-generating print, social media, digital, and video marketing for thousands of stakeholders. Her team’s priority is to give USA’s loan officers numerous custom resources to grow and support their business. For a confidential conversation about joining USA, contact Brooke Anderson at 609-500-1520 or email us.”

“Keith McKay, CEO of Prime Choice Funding, invites you to participate in reshaping the mortgage industry. Our mission for 2023 is to become the top mortgage broker in the nation. Join our team and expand your professional horizon with our diverse loan programs, flexible compensation plans, and a unique opportunity to earn extra by offering solar solutions to your clients. Backed by comprehensive marketing resources, cutting-edge platform, and robust operations support, your potential for growth is limitless. With a history dating back to 2007, Prime Choice represents stability and innovation in finance and sustainability. Register for our webinar today and explore these rewarding opportunities.”

 Download our mobile app to get alerts for Rob Chrisman’s Commentary.

Source: mortgagenewsdaily.com

Apache is functioning normally

Fickle mortgage rates rose once again last week, this time four basis points to an average of 2.99%, according to Thursday data from Freddie Mac‘s PMMS. However, despite fluctuating sub-3% mortgage rates, borrowers are still competing in a supply strained and overheated market.

“Home prices continue to accelerate while inventory remains low and new home construction cannot happen fast enough,” said Sam Khater, Freddie Mac’s chief economist. “There are many potential homebuyers who would like to take advantage of low mortgage rates, but competition is strong. For homeowners however, continued low rates make refinancing an option worth considering.”

The overall housing index hit its lowest point since February, said Joel Kan, the Mortgage Bankers Association’s associate vice president of economic and industry forecasting. Even though rates have been below 3.2% over the past month, they are still around 20 to 30 basis points higher than the record lows in late 2020, he said.

“Tight housing inventory, obstacles to a faster rate of new construction, and rapidly rising home prices continue to hold back purchase activity,” said Kan. 

While the COVID-19 crisis has kept mortgage rates lower and suppressed inventory, these two factors have also facilitated higher levels of price growth as COVID-19 happened amid a housing market sweet spot.

What does it mean to offer modernized servicing?

We’re a year into the pandemic, and while smart policy has delayed a default wave, the threat still looms large. Servicers must be powered by nimble technology to be heroes to borrowers, stalwarts to investors, and stewards of consumer protection to regulators.

Presented by: Sagent Lending Technologies

“We have an increase in the number of buyers and a total collapse of inventory driving home-price growth,” said Logan Mohtashami, lead analyst at HousingWire. “In the last expansion, the only thing that kept home-price growth from taking off was the higher mortgage rates of 4% to 5%. We are currently enjoying the lowest mortgage rates ever, so we don’t have that to dampen the market.” 

According to Mohtashami, the new home sales marketplace is unhealthy, but when mortgage rates rise, this sector will get hit harder than the existing home market, like it always does. This won’t result in an epic housing crash, but it will impact future construction.

April’s existing home sales painted a familiar picture of a market still grappling with low supply as sales dropped for the third month in a row, down 2.7% from March to 5.85 million. Last week’s data on pending home sales proved that like new and existing sales, pending home sales also felt the strain of exhausted home inventory in April ― dropping 4.4% from the previous month to an index of 106.2, according to the National Association of Realtors.

Source: housingwire.com

Apache is functioning normally

Some remarks made by Secretary Treasury Steven Mnuchin are influencing the direction of the markets today and putting some upward pressure on mortgage rates.

We’re not talking about a strong surge but there is a notable push higher right now. The good news is that mortgage rates are still relatively low so if you’re looking to purchase or refinance now is a good time to do it. Read on for more details.

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Market Outlook 1.22.18 from Total Mortgage on Vimeo.

Where are mortgage rates going?              

Rates move higher

Mortgage rates are on the rise today. The big news story dominating headlines right now comes out of the World Economic Forum in Davos where Secretary Treasury Steven Mnuchin made several comments that caught the eye of financial market participants, most notably that a “weaker dollar is good for us [the U.S.] as it relates to trade and opportunities.”

Click here to get today’s latest mortgage rates (Jul. 21, 2023).

He continued, stating that “Longer term, the strength of the dollar is a reflection of the strength of the U.S. economy and the fact that it is and will continue to be the primary currency in terms of the reserve currency.”

His comments caused the dollar to slip down to a three-year low, and is pushing up long-term Treasury yields. If we take a look at the yield on the 10-year Treasury note (the best market indicator of where mortgage rates are going), we can see that it’s up about four basis points today to 2.65%.

Mortgage rates tend to move in the same direction as the 10-year yield and are similarly dealing with some upward pressure today. Rates have been on the rise for several weeks now and are expected to continue rising throughout 2018.

Rate/Float Recommendation       

Lock now while rates are low

While mortgage rates are definitely moving higher, they’re currently still at levels that are considered low on a historical perspective. If you’re considering refinancing your current mortgage or buying a new home, our recommendation is to take action sooner rather than later in order to try and get the best rate.

Click here to head to our Mortgage Builder and figure out how much you could save.     

Today’s economic data:                        

FHFA House Price Index  

Home prices moved up 0.4% in November. That puts the yearly change at 6.5%.

PMI Composite Flash  

The PMI composite flash hit a 53.8 in January. Manufacturing hit a 55.5, while services came in at 53.3.

Existing Home Sales

Existing home sales for December hit an annualized rate of 5.570 M. That’s a monthly drop of 3.6%, bringing the year over year change to 1.1%.

EIA Petroleum Status Report

  • Crude oil: -1.1 M barrels
  • Gasoline: 3.1 M barrels
  • Distillates: 0.6 M barrels

Get the GreenLight and close in 21 days*      

Notable events this week:               

Monday: 

  • Chicago Fed National Activity Index

Tuesday:    

  • Richmond Fed Manufacturing Index
  • Fedspeak

Wednesday:      

  • FHFA House Price Index
  • PMI Composite Flash
  • Existing Home Sales
  • EIA Petroleum Status Report

Thursday:        

  • International Trade in Goods
  • Jobless Claims
  • New Home Sales
  • Kansas City Fed Manufacturing Index

Friday:       

  • Durable Goods Orders
  • GDP

*Terms and conditions apply.

Carter Wessman

Carter Wessman is originally from the charming town of Norfolk, Massachusetts. When he isn’t busy writing about mortgage related topics, you can find him playing table tennis, or jamming on his bass guitar.

Source: totalmortgage.com

Apache is functioning normally

One of the perhaps lesser-known, but fastest growing mortgage companies that is making big strides in the industry is Caliber Home Loans.

The national mortgage lender, which is based out of Coppell, Texas, just north or Irving, TX, has been around since 2008, which was essentially when the mortgage industry went bust.

Since then, they’ve grown into a mortgage powerhouse and are now a top-10 mortgage lender nationwide, with aspirations to be top five sooner rather than later.

And it turns out they caught the attention of suitors in the process.

In August 2021, the company was acquired by New Residential Investment Corp. (Newrez).

Caliber Home Loans History

  • The company rebranded in 2008 around the time of the housing bubble burst
  • Started with government mortgages such as FHA loans
  • Then began offering conventional loans backed by Fannie Mae and Freddie Mac
  • Have grown into a top-10 mortgage lender via a number of large acquisitions
  • Funded more than $24 billion in home loans via retail channel in 2019
  • Planned to go public with $2+ billion valuation
  • Later acquired by Newrez in the second half of 2021

Back in 2008, around the time of the financial crisis, the parent company Caliber Funding went through a rebranding process and acquired the lending assets of the CIT Group, which it later renamed Vericrest Financial.

A year later, they obtained the ability to directly endorse FHA loans and received direct lending authority for VA loans, meaning lending decisions could be made in-house.

In 2012, they received Freddie Mac seller approval and began issuing securitizations. They also gained Ginnie Mae approval at that time, and loan servicer approval for both.

Caliber Home Loans Inc. was born in 2013 when Caliber Funding with Vericrest Financial merged into one brand, which coincided with their correspondent lending business and Fannie Mae seller approval.

In mid-2016, Caliber acquired First Priority Financial, expanding their footprint in northern California and the western U.S., including states like Idaho, Iowa, Oregon, Washington.

Not long after, they became one of the top mortgage lenders in the country, with over 3,500 employees nationwide.

They refer to their loan officers as loan consultants, though they also partner with mortgage bankers and wholesale lenders to originate loans through various channels.

And they pride themselves on being a mortgage-only shop, as opposed to a mega financial institution that also doles out credit cards, life insurance, and student loans. They’re mortgage-focused and only sell home loan products.

Their latest big move was in 2017 when they acquired Banc Home Loans, which resulted in an 1,800-strong sales force across 340 retail branches located throughout the United States.

Aside from retail, Caliber’s originations come via a booming correspondent channel, along with a wholesale channel, meaning mortgage brokers can offer their loan products to consumers as well.

Speaking of, they recently launched a mobile app for their broker partners that uses Caliber’s proprietary H2Online system, which allows them to price and lock loans from their smartphone.

So it’s clear their mission is to grow and become a household name in the mortgage industry, and they appear to be on track.

In fact, they now have plans to go public with a valuation greater than $2 billion, per the WSJ.

What Does Caliber Home Loans Offer?

  • Home purchase loans
  • Rate and term refinances, cash out refis, and streamline refinances
  • Conforming loan products including Freddie Mac BorrowSmart
  • Jumbo loans and high-balance mortgages
  • FHA loans
  • VA loans
  • USDA loans
  • Renovation loans
  • Portfolio loans such as interest-only products
  • HELOCs
  • Fixed mortgages
  • Adjustable-rate mortgages

Now let’s talk about their loan programs. As alluded to in their company history, they’re equipped to provide all types of loans backed by Fannie Mae, Freddie Mac, the FHA, and the VA.

You can also obtain a USDA loan from Caliber Home Loans, and they have specialty products like the 203k renovation loan if the real estate you’ve got your eye on needs a little work.

In terms of government home loans, they’ve got everything. In fact, Caliber even has a special Military and Veteran Lending division solely for VA loans. They also been recognized as a Military Friendly Brand two years in a row (2017 and 2018).

In late summer 2017, they announced the funding of their 10,000 VA purchase loan, so it’s clear they’ve got some experience in that department.

For conventional loan offerings, they have both conforming stuff (Fannie/Freddie) along with jumbo loans, and even a jumbo interest-only ARM.

You can get a HomeReady or Home Possible loan with just 3% down, and they have all loan types from 30-year and 15-year fixed mortgages to a wide array of adjustable-rate mortgages.

If you’re looking for more than just FHA loans and Fannie and Freddie stuff, they’ve got your covered.

In fact, they have some proprietary home loan products like their “Caliber 5-Star ARM” that adjusts once every five years, as opposed to annually once the first five years go by (like the classic 5/1 ARM), whose name I assume is an ode to the Lone Star State.

This 5/5 ARM can be beneficial if the associated mortgage index remains low throughout those five years, giving the homeowner another five years of safety from upward rate adjustments.

Of course, it can also backfire if the first adjustment is high and locked in for a full five years.

With regard to jumbo loans, you can get loan amounts as large as $2.5 million, which should satisfy most folks’ needs. And down payments start as low as 5%.

That jumbo interest-only ARM is one of their flexible non-QM offerings, but does require a minimum 700 credit score, which means only the most creditworthy borrowers need apply.

Ultimate Home Buying Experience

I’ve written about this technology before – in short, it allows for the digital delivery of income, asset, and employment history to speed up the loan process, similar to how Rocket Mortgage works.

If all works out, Caliber Home Loans aims to get your loan from application to closing in as little as 10 business days.

That’s pretty fast, and might give you an edge if you’re a first-time home buyer in a competitive housing market.

There’s also a Caliber Home Loans for Borrowers app that allows customers to track their loan as it moves through the process. They also can opt-in to notifications for any issues or problems that arise, and receive updates such as loan approval or denial.

Once the loan closes, they can make payments, set up recurring payments, via escrow account and payment history, and even request the removal of private mortgage insurance.

Caliber Has Some Unique Home Loan Options

  • Loan amounts as high as $3 million with credit scores as low as 650
  • Loan programs for those who have late payments or a recent short sale, foreclosure, etc. with FICO scores as low as 610
  • Loan amounts as low as $100,000 for both investors and primary residences
  • A home loan financing program for new builds
  • HELOCs for those wishing to tap equity

Premier Access

They also have a Premier Access portfolio program that allows loan amounts as high as $3 million with lower credit score requirements down to 650. And the loans may not require private mortgage insurance.

It’s also possible to use asset depletion to qualify for a mortgage through the Premier Access lending suite, and cash-out refinances up to $750,000 are also permitted.

Elite Access

Their newest portfolio loan program, known as “Elite Access,” is a jumbo loan product that allows loan amounts as high as $3 million with as little as 5% down payment. However, a minimum 700 FICO score is required.

It is being offered in both fixed and adjustable options to satisfy home buyers and those refinancing existing mortgages (up to 95% LTV) in high-cost markets nationwide.

Homeowner’s Access

This is Caliber’s loan suite for those who have late mortgage payments, or a recent short sale, foreclosure, or bankruptcy filing.

It features shorter waiting times to buy a home, the acceptance of non-traditional credit history, and higher DTI ratios up to 50%. You may also be able to purchase a home with nothing down by using gift funds, and credit scores go as low as 610.

Fresh Start Program

This suite of home financing solutions seems to be even more aggressive, offering home loans with no seasoning requirement after bankruptcy, short sale, deed-in-lieu, or foreclosure.

The Fresh Start program also offers low down payment options and low minimum credit scores, along with loan amounts from $100,000 all the way up to $1 million.

Investment Program

Additionally, they have a suite of loan programs designed especially for real estate investors, including low down payment requirements on loans up to $2 million.

They’ll go as low as 620 in terms of credit score and allow loan amounts as low as $100,000.

More importantly, they provide the option to purchase an unlimited number of investment properties, and offer things like delayed financing, which allows you to buy with cash then quickly do a rate and term refinance.

National Builder Program

Lastly, they have a home builder financing arm that specializes in providing mortgage loan financing on new homes.

They have a dedicated loan fulfillment team that can offer financing of all types on all sorts of properties, including non-warrantable condos.

And they allow mortgage rate locks for as long as 12 months, yes, that long. Well, for some reason 360 days, but that’s still pretty unheard of! So if it takes a while to close, they can secure your rate.

Along those same lines, they offer a service called “Doc Lock,” which secures income and asset verification for up to six months on conventional home loans.

Oh, and they recently launched a HELOC known as the “HomeAccess Your Way Equity Line of Credit.” It appears to have a 30-year term, including a 10-year draw period and a 20-year repayment period.

So they’ve got plenty of loan products and a potentially streamlined loan process to serve mortgage loans to customers nationwide across all channels.

Caliber Home Loans Mortgage Rates

  • Caliber mortgage rates aren’t advertised
  • You won’t see them on their website
  • However I came across some of their rate sheets
  • That seem to be in line with what most other lenders are offering

They don’t seem to openly advertise their mortgage rates, unlike other banks and mortgage lenders, you won’t find them on their website.

However, I’ve seen some lender ratesheets from Caliber and their pricing seems to be on par (no pun intended) with what else is out there. Of course, that’s the wholesale lender channel, so results may vary across other channels like retail and correspondent.

From what I can tell, their mortgage rates aren’t necessarily any higher or lower than the average rates available. Of course, take the time to shop your rate with other lenders to ensure it’s the best it can be.

Caliber Home Loans Reviews

On Zillow, the company has a 4.96-star rating out of 5, which is pretty much as good as it gets aside from perfection.

That strong rating is based on nearly 6,000 customer reviews, meaning it’s not a fluke.

Since they’re a very large company, you may want to drill down and look at individual loan officer reviews for Caliber, which you can do on the Zillow website.

Many of the reviews said both the interest rate and closing costs were lower than expected, which is a good sign if your lender decision is driven by price.

On LendingTree, they have a 4.2 out of 5-star rating based on more than 700 customer reviews. While not as good, it’s still mostly positive.

They are a Better Business Bureau accredited company and have been since 2014.

Caliber Home Loans Inc. currently has an ‘A’ rating with the BBB and has just over 3 out of 5 stars based on about 200 customer reviews.

They’ve got some bad reviews, but that’s typical because people are more likely to leave a bad review than a good review. But feel free to peruse them as you see fit.

And pay attention to closing costs, which can vary widely as well.

Why Choose Caliber Home Loans?

  • Caliber offers a wide selection of home loan types to fit most loan scenarios
  • They’ve got smartphone apps for borrowers and all their business partners
  • Along with the latest technology to go digital and upload/track important documents
  • And they offer home loans via all major channels including retail, correspondent, and wholesale in all 50 states

To sum it up, Irving, Texas-based Caliber Home Loans has a home loan for just about any purpose, and the company originates loans through various avenues to suit all personality types. They’re also a national mortgage lender licensed to do business in all 50 states.

This means you can take advantage of their mortgage products via a retail branch, a mortgage broker, or even another correspondent lender.

And unlike many mortgage lenders, Caliber retains the servicing rights to their home loans, meaning you’ll make your monthly mortgage payments to them, not some other company. This appears to be their pledge to make you a customer for life.

As a servicing customer, you might be eligible for a mortgage recast if your loan type is eligible. The minimum principal reduction payment is $5,000, which when applied, will lower your future monthly mortgage payments.

At last glance, their loan servicing portfolio had swelled to over $100 billion, while monthly loan volume is nearing $2 billion.

As such, I expect Caliber to become a household name in the next decade, if not sooner.

As always, be sure to compare all your loan and lender options to ensure you receive the best pricing and service on your home loan. There are lots of choices out there, so make sure you get more than one quote.

Read more: Quicken Loans review

Source: thetruthaboutmortgage.com

Apache is functioning normally

In August 2020, Taylor Lopez and her husband Joseph bought their home for $180,000 in the fast-growing city of Anna.

They bought the three-bedroom house built in 1966 with a loan carrying a 3.8% mortgage rate. “From an investment standpoint, it felt like a good choice,” said Lopez, 36, a real estate manager for restaurant chain Wingstop.

Dallas-Fort Worth home sales, prices only take slight hit from higher mortgage rates

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After more than two years in the home, they’ve been thinking about selling. Joseph works in Lewisville and Taylor works in Addison, so they would like to find a place offering a shorter commute.

D-FW Real Estate News

Get the latest news from Steve Brown and the business staff.

But, like many other would-be upsizers in Dallas-Fort Worth, the couple feels locked into their current home.

Although they could get a good return on a sale, they would have to shop in a dramatically more expensive housing market than when they first purchased and sacrifice their current loan for a new one at a much higher rate.

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After a wave of low-rate homebuying and refinancing from 2020 to 2022, more than half of outstanding Texas mortgages have rates of less than 4%, according to Federal Housing Finance Agency data.

Since last fall, the average rate for a 30-year, fixed-rate mortgage has been hovering between 6% and 7%.

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“There are people that want to sell, but that is what is keeping them there at their house,” said Misty Michael, a real estate agent in the Sachse and Plano area.

The Lopez family said any home they would want to buy, in school districts they want to be in and that wouldn’t require a lot of work, would start in the $400,000 range.

“It doesn’t make sense when you weigh out all the pros and cons, so we’re continuing to drive about an hour each way to work,” Lopez said. “We could always purchase a home at a higher interest rate, then refinance it if the interest rates go down, but that’s an if and when situation.

“When you’re playing with that much money, it doesn’t seem like a risk I’m willing to take right now.”

Joseph (left) and Taylor Lopez purchased their home in Anna in 2020 for less than $200,000 with lower mortgage rates and are now waiting out higher rates and prices as they look to sell. (Liesbeth Powers / Special Contributor)

Changing math

Since the start of 2020, the median price of a single-family home in Dallas-Fort Worth has risen more than 50%, according to North Texas Real Estate Information Systems and the Texas Real Estate Research Center at Texas A&M University.

On top of that, the Federal Reserve has aggressively increased its federal funds rate for more than a year, indirectly driving up mortgage rates. Freddie Mac recorded an average 30-year mortgage rate of 6.96% on July 13.

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The result: The monthly principal and interest payment for a median-priced Dallas-Fort Worth home at the average rate with a 20% down payment, before insurance or property taxes, was about $980 in January 2020. In June, it was more than $2,100.

For buyers who purchased a $300,000 home at the record low of 2.65% in January 2021, just buying a house at the same price again at today’s average rate would add almost $900 to their monthly payments before taxes and insurance.

Purchasing a bigger or nicer home would add significantly more to that already-elevated payment, so people with job promotions or babies on the way looking to upgrade to bigger homes may not find a good enough deal to justify it financially.

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“It now is significantly more expensive to make these marginal changes that you might have been planning,” said Texas A&M economist Adam Perdue. He and his wife are expecting a baby soon and have considered getting a bigger home, but they too have a low rate on their home in Brazos County and don’t want to take on higher monthly payments.

While prices are declining slightly year to year, Texas A&M economists don’t expect them to return to where they were at the beginning of 2020. Rates are also expected to decline, but not back down to the record lows. Mortgage Bankers Association forecasts rates in the 5% range by 2024.

Still buying and selling

As mortgage rates rose and sellers held back, new single-family home listings in Dallas-Fort Worth dropped 22% between June 2022 to June 2023, limiting options for people looking to buy.

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Buyers with an immediate need to move are still purchasing homes, and people continue to move to Texas from other parts of the country. Local home sales recorded in June were down only slightly from a year before.

“We have a ton of buyers that are wanting to buy a home,” Michael said, adding that buyers may choose to refinance later. “You have people getting married, having babies, kids going to college.”

More casual buyers without an immediate need to move may no longer be shopping, said Drew Kayes, who heads up homebuying company Opendoor’s operations in Dallas-Fort Worth and Houston.

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“A lot of those folks right now are not in the market because they’re locked into a sub-4% rate, and that’s more of a luxury move than a necessity move,” Kayes said.

An open house sign beckons buyers outside of a home in Plano. (Shafkat Anowar / Staff Photographer)

Jason Dickson, co-owner of North Texas-based Nuwave Lending, said while it may be hard for homeowners to leave their current home, it may be worth it for them to tap into equity they’ve built up during the pandemic to pay off credit card debt or auto loans.

“They’ll gladly sign up for the higher interest rate in the new house if they have the benefit of taking that equity and improving their overall financial position,” he said.

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A silver lining

Nipun Gadhok, development manager for the Nehemiah Company, is looking to move from Fort Worth to buy a home in Mesquite next year.(Liesbeth Powers / Special Contributor)

Nipun Gadhok, 31, doesn’t want to lose his 3% rate but hopes to purchase a new home for him and his girlfriend next year.

Gadhok, a development manager for the Nehemiah Co., a local firm behind residential communities throughout Dallas-Fort Worth, purchased his five-bedroom home in Fort Worth’s Augusta Meadows neighborhood in 2021.

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He’s looking to buy a home along the outskirts of the metro area, potentially in one of his company’s developments on the east end of Mesquite. Knowing he has a rate he may never get again, he’s not planning to sell his Fort Worth house.

He intends to keep it as a rental property and is already renting out rooms to four other tenants. With mortgage rates causing many people to rent, that’s turning out to be a good side hustle.

“People are choosing to rent, they are not as much inclined to buy,” Gadhok said. “The rates really helped me out in the way that I’m not having problems with finding tenants.”

Read more stories about the D-FW housing market
Here’s how much profit Dallas-Fort Worth home sellers are making

Home sellers in North Texas are pocketing some of the highest gains on record, even though profit is down from last summer’s peak.
Apartments set to start construction this fall on Plano’s Haggard farm

Developers of Plano’s legacy Haggard farmland on the Dallas North Tollway are disclosing more details of a $70 million, four-story, 569,000 square-foot apartment project.
Dallas-Fort Worth tops Texas with a quarter of statewide home sales

Dallas-Fort Worth leads Texas in home sales with more than 27,000 properties trading in the second quarter.

Source: dallasnews.com

Apache is functioning normally

USAA Mortgage, technically known as USAA Bank Home Loans, is one of the larger mortgage lenders out there, though not quite in the top 10.

They’re probably best described as a top 25 mortgage lender, but they’ve got a great website (per my opinion) and good customer service, per J.D. Power, so I figured it would be prudent to take a closer look.

For the record, USAA stands for United Services Automobile Association, an outfit based out of San Antonio, Texas.

The company has that name because they started out in the insurance business, helping military members get auto insurance coverage, then gradually began offering more financial services, including auto loans, personal loans, credit cards, and home loans.

They’re basically a full-fledged bank today, but let’s learn more about those mortgage offerings, including USAA’s mortgage rates, shall we.

What USAA Mortgage Offers

  • Mainly conforming loans that meet Fannie/Freddie guidelines
  • Also VA loans for military and their families
  • Don’t offer FHA or USDA loans
  • Must be a USAA member to get a mortgage from them

First off, USAA offer plenty of loan options, including conforming loans that meet the underwriting guidelines of Fannie Mae and Freddie Mac, along with VA loans, which are available for active duty military and veterans and their families.

Additionally, they offer jumbo loans on loan amounts as high as $3 million, which should satisfy most home buyers, and even jumbo VA loans.

Notably absent from their mortgage product lineup are FHA loans and USDA loans, but seeing that USAA is geared toward those who serve, it makes sense.

Speaking of, you need to be a member of USAA in order to get a mortgage from them, which can be obtained if you’re active duty, a veteran, have a spouse that is/was, or a parent that is a USAA member.

Back to those loan programs. In the conforming department, they offer the 97% LTV home loan program that requires just 3% down payment, a home loan offered by both Fannie Mae and Freddie Mac. They actually refer to it as the “30-year first-time homebuyer” loan though it may not actually be limited to just first-timers.

There is an assumption that first-time home buyers can’t come up with large down payments, but this isn’t necessarily true.

It’s also fairly common for these home buyers to put down 20% to avoid mortgage insurance and the higher mortgage rates that come at high LTVs.

While the down payment requirement is low, it is only available on primary residences and the only loan option is the 30-year fixed. Still, that should fit most borrowers’ needs.

If you’re able to put down at least 5%, you can get your hands on a 10-year, 15-year, or even a 20-year fixed mortgage.

If you’re looking for a mortgage with no down payment, USAA also offers VA loans, which don’t require any money down or a minimum credit score. However, USAA seems to require credit scores of 620 or higher to qualify, which is a pretty common threshold.

These are available in a variety of different terms, including 10-, 15-, 20-, and 30-year loan terms. You can also get a 5/1 ARM, which is fixed for the first five years of the loan term before becoming annually adjustable.

The ARM option only appears to be available for VA loans, not on conventional USAA loans.

With regard to their jumbo loans, you can get a 30-year fixed or 15-year fixed if you go the conventional route, with a minimum 20% down payment. This means you also avoid PMI.

If you need a jumbo VA loan, you can go with a 30-year fixed or a 5/1 ARM.

USAA also offers home loans on vacation homes (second homes) and investment properties, which I believe are limited to fixed-rate mortgages only.

USAA Mortgage Rates

  • Their advertised mortgage rates seem to be on par
  • With what you’ll see elsewhere
  • Not noticeably higher or lower than the competition
  • So customer service might be the deciding factor

This always seems to be top of mind, but is a moving target as well because mortgage rates can change daily.

But I can say that USAA’s mortgage rates seem to be pretty competitive and on par with what you’ll see advertised elsewhere.

And a sweet spot might be their 20-year fixed, which at the moment, is priced a half a percentage point below the 30-year fixed.

It also comes with a lender credit, whereas the 30-year fixed requires a fraction of mortgage points to be paid to obtain the advertised rate.

If you can afford it (and want to pay off your mortgage earlier), it could be a good choice. Not all lenders offer the 20-year fixed, so USAA has that going for them too.

USAA Mortgage Refinance Options

  • You can get a rate and term refinance
  • Or a cash out refinance
  • They also offer the VA streamline refinance
  • But it appears you can only choose a fixed-rate mortgage

Aside from home purchase mortgages, USAA also offers refinance loans if you already have a mortgage and happen to be looking for a lower interest rate or cash out.

They offer both rate and term refinances, which are intended to lower rates and/or shorten loan terms, and cash out refinances, which allow borrowers to tap into their available home equity.

If you’re refinancing a VA loan, they offer Interest Rate Reduction Refinancing Loan (IRRRL) streamlined refinances.

All refinance options offered by USAA Mortgage seem to be limited to 30-year and 15-year fixed mortgages only. It doesn’t appear adjustable-rate mortgages are an option here.

Occasionally, USAA has loan specials, such as no origination fee charged on VA loans, which could sway your decision to use them over a competitor.

Why Choose USAA Mortgage?

  • Current members might as well check them out
  • And include them in their home loan search
  • But you should also gather quotes from the competition
  • To ensure you land the lowest rate and closing costs

If you’re already a member of USAA, it’s certainly worth checking out their home loan offerings if you’re in the market to buy a home or refinance your mortgage.

I say that because you should broaden your search in general to see what’s out there, and if it’s with a banking institution you already have a relationship with, the loan process might be a bit smoother.

You may have also established trust, which can be a big plus in terms of putting yourself at ease during what is often a stressful time.

On the other hand, just because you have a checking account or homeowners insurance policy with USAA doesn’t mean you should get your mortgage there too.

There might be a better fit elsewhere based on rate, closing costs, service, or a combination of all those things.

Another plus of going with USAA is that they’re probably well-versed in VA loans, seeing that their members are also members of the military and/or their families.

My assumption is they originate a lot of VA loans for their military family of customers, so if that’s what you’re looking for, it might make for a smoother process compared to a general home loan lender.

Of course, there are lots of other lenders out there that specialize in VA mortgages as well, so they aren’t necessarily the be all, end all for your home purchase or refinance needs.

As always, take the time to shop mortgage rates and look at the interest rate, closing costs, points required, and the track record of the company you ultimately do business with.

While cost is certainly important, a competent lender is a must as well to ensure your home loan actually closes!

(photo: Lars Plougmann)

Source: thetruthaboutmortgage.com

Apache is functioning normally

Thursday, July 20, 2023

Like many of you, we are seeing a significant increase in commercial real estate (“CRE”) loan workouts. The magnitude of the swell in distressed CRE loans remains unclear, although one thing is certain: appreciating the options and remedies for CRE participants, particularly lenders and borrowers, has never been more critical.

A Changing Landscape

Under contemporary commercial real estate finance practices, many CRE loans are typically structured as nonrecourse interest-only loans with balloon payments at maturity. In times of low interest rates and booming property values – the case over the last decade or so – borrowers were generally able to refinance their loans with relative ease. 

Unfortunately for borrowers, times have changed dramatically, and the current real estate lending environment has thrown the traditional playbook out the window. In response to persistently high inflation, the Federal Reserve has raised interest rates by 500 basis points since March 2022 (with additional hikes expected this year). Rate hikes, combined with declines or threatened declines in real property values, have resulted in a challenging environment for CRE refinancings.

Borrowers eager to refinance will face higher borrowing costs, and banks, skeptical that property values will recover soon, have grown reluctant to issue new loans. Additionally, many properties (particularly in the office sector) cannot support the carrying costs associated with higher-interest alternative credit providers.

What Lies Ahead

A spike in real estate foreclosures, deeds-in-lieu, and CRE loan modifications is therefore looming (if not already here). Until values stabilize, CRE may become a “hot potato,” with borrowers whose equity values have evaporated uninterested in expending additional resources to retain their properties and lenders reluctant to take them over.

If history is any indication of what’s ahead, we expect the increased activity in loan workouts to result in a mix of mortgage and mezzanine foreclosures, bankruptcy filings, deeds-in-lieu, loan modifications, loan sales, and property short sales.

CRE Loan Workout Outcomes

From “amend and extend” strategies to deeds-in-lieu. there are many potential paths that a loan workout may take. There are tax implications to each outcome that will have to be considered and may drive many of the decisions in a loan workout. Those include cancellation of debt income for recourse loans, capital gains treatment for nonrecourse loans, and a material loan modification being treated for tax purposes as an exchange of debt.    

Amend and Extend: In most cases, we expect to see agreements between borrowers and lenders to modify CRE loans permitting the borrower to continue to own and operate property under more favorable loan terms. This “amend and extend” strategy became popular after the 2008 financial crisis when experts expected property values to recover quickly, which ultimately came to pass. It remains to be seen whether lenders will show the same flexibility in the current climate.

Loan modification agreements come in many different flavors. They may simply extend maturity dates on the same terms and conditions. By extending out loan maturity dates to 2025 or later, lenders and borrowers are betting that the additional term will allow sufficient time for interest rates to fall, occupancy rates to rise, and property values to recover enough to allow for a more successful sale or refinancing. Loan modifications can also be used to adjust interest rates, loan covenants, the cash management waterfall, defer capital expenditure requirements, provide additional liquidity, allow for the entry of a new equity partner, and otherwise waive existing defaults. In many cases, to obtain these concessions form the lender, a borrower or its sponsor may be required, in addition to fees, to reduce principal or invest new equity for capital improvements or as a carried interest reserve.

Foreclosures: CRE loans are underwritten based on the value of the underlying collateral. A real property loan is collateralized by a mortgage on the property itself, whereas a mezzanine loan (and sometimes preferred equity) is collateralized by a pledge of the sponsor’s equity in the entity that owns the property. After a loan default, the lender has several enforcement options, including foreclosure. Generally, a successful foreclosure extinguishes all junior liens and encumbrances and removes them from the property’s title.

The foreclosure process differs from state to state and by the type of collateral.  Foreclosures of mortgages, leasehold mortgages, or deeds of trust on real property can be judicial or non-judicial. That threshold question will typically determine the duration of the process. A judicial foreclosure takes months or years, depending on the defenses raised by the borrower. A non-judicial foreclosure can be completed in a matter of weeks. Although more common in judicial states, most mortgage loans contain provisions that entitle the lender to the appointment of a receiver early in the case to take control of the property. This remedy may also be available in non-judicial states where the lender commences an action in state court for the appointment of a receiver. A judicial foreclosure provides a borrower that wants to delay or contest the lender’s enforcement of its remedies with a forum to raise defenses and create triable issues of fact. In non-judicial states, the burden is on the borrower to commence an action in court to enjoin or stop the foreclosure. That presents a higher bar to overcome.   

In contrast, a foreclosure on a pledge of the membership or partnership interest in the mortgage borrower, either under a mezzanine loan or as additional collateral securing a mortgage loan, is always a non-judicial process. Equity interests in commercial entities are personal property. Thus, a pledge of an equity interest is governed by the Uniform Commercial Code, which expressly contemplates non-judicial foreclosures provided that they are conducted in a commercially reasonable manner.       

Unlike the mortgage lender, which can foreclose on the borrower’s fee interest, a mezzanine lender forecloses on the equity interest in the fee owning entity. This means that the mezzanine lender is taking ownership and control of an entity and all of its debts and liabilities, including the mortgage loan. This prospect of having to assume the mortgage loan and provide a replacement guaranty, if any, may deter some mezzanine lenders from foreclosing on their loans.

Bankruptcy: Many CRE loans have been structured as non-recourse, meaning that the lender’s recourse is limited to the property itself. To discourage borrowers (who may have invested relatively limited equity in the property) from filing for bankruptcy protection in an effort to halt foreclosure proceedings and then to try to cramdown their lenders, commercial real estate loans often require a credit-worthy guarantor to provide a springing recourse guaranty (known as a non-recourse carve-out guaranty). Personal liability under the guaranty for the entire loan balance springs into existence – becoming a recourse loan – upon the happening of specified “bad” events, such as a bankruptcy filing by borrower. 

The advent of the springing recourse guaranty puts the guarantor in the position of having to repay the entirety of the loan in full if the borrower files for bankruptcy (or triggers certain other defaults). As a result, borrowers generally avoid filing bankruptcy except where: (1) the property’s value exceeds the amount of the guaranty and whatever other obligations may need to be paid in bankruptcy; and (2) the guarantor is insolvent or is itself prepared to file for bankruptcy protection as well, such that the liability exposure under a springing guaranty is less of a threat. 

Deeds-In-Lieu: For a variety of reasons, borrowers may prefer to give the property to the lender via a deed-in-lieu, rather than delay the inevitable by forcing the lender to conduct a foreclosure. For borrowers and guarantors, a deed-in-lieu of foreclosure may include a release that will extinguish or reduce liability under any existing guaranties and loan documents (although such releases will typically exclude environmental indemnities).  For lenders, a deed-in-lieu should expedite the transfer of the property and allow for a more seamless transition.

A similar method to consensually transfer ownership and control exists under Article 9 of the Uniform Commercial Code. This is known as a “strict foreclosure” and allows for the sponsor to transfer its equity interest in the fee owner to the mezzanine lender.

One complexity here is that the borrower cannot force its lender to take the property. While it may seem counterintuitive, once the default actually occurs the lender may be unwilling to take ownership of the property due to the expenses associated with it, required capital expenditure projects, and cost and time to manage it. The property may also have potential successor liability issues, such as environmental issues, that often deter lenders from accepting title. If the lender has control of the rents through a lockbox and cash management arrangements, a borrower will not be able to cutoff the flow of funds without triggering recourse liability under a springing guaranty. Thus, the lender can continue to receive the cash flow without having to assume the risks of actual fee title ownership. On the other hand, if cash flow is not sufficient to cover the operating, repair and maintenance costs of the property, a lender may have to move quickly to assume ownership and control to preserve the value of its collateral. In that case, a deed-in-lieu of foreclosure may be a desired approach.

A deed-in-lieu may present other issues if a mezzanine loan or loans also exist. In certain cases, depending on the terms of the mezzanine loan documents and any intercreditor agreement between the mortgage lender and mezzanine lender, the consent of the mezzanine lender may be required before a borrower could convey the property to the mortgage lender. That requirement will give the mezzanine lender an opportunity to extract its own concessions in return for its consent.

Other Possible Variations

While beyond the scope of this introductory article, there are numerous other potential paths that a loan workout may travel. For example, the lender may decide to sell its loan to an opportunistic buyer that is willing to exercise remedies to acquire the property. 

The borrower and lender may also agree to convert all or a portion of the lender’s loan into equity of the borrower (or a new joint venture), while bringing in another investor to inject needed funds into the project.

The possibilities are numerous, and creative thinking (and counsel) are a must. 


2023 Goulston & Storrs PC. National Law Review, Volume XIII, Number 201

Source: natlawreview.com