In
an old saying, modifications are known as workouts. There are numerous
appearances in which commercial loan modifications are skills, which can
include fixing the rate, reducing face rate of the mortgage, changing margin
utilized for loan and changing the index. An important and costly lesson has
been learned by many lenders in 1970’s and 1980’s. Long term lending does not
work as well as it should. Lenders were provided with an amount for long
duration of time generally for thirty years in 1960 and 1970’s, which turned
out to be a financial disaster.
Different banks in 1970’s greatly caught with
long durations of low interest loans in a world of fast increasing interest
rate, which turned every long duration loan into a losing scheme for the
lender. Nowadays, the biggest issue is that no capital market is available for
commercial loans. There have been almost 40 percent rejections in value from
the year 2007, to date. Lenders have hugely reduced their LTV’s and the issues
have clearly become evident.
One more chance is to lengthen the loan term,
making amortization duration lengthier, in order to lower the payment and to provide
relief to the borrower. There are a few cases in which loans, which got cast
making use of twenty year amortization are being modified to 25, 30 and
unbelievably in a few cases, there were forty two year amortization schedules.
It can minimize the payment for making it comfortable for borrowers and return
loan to a performing status.
A huge disaster is developing in America and
the World is engaged in a business called Mortgage business. In a recent
Business Week article, it is said that complete debt totals for each of child,
man and woman in the U. S are $6.4 TRILLION that is $21,333.33. Big challenge
for both Lenders as well as Borrowers is similar like setting up a value for a
piece of property. Many things should be taken into consideration such as
location, employment, expenses, economy, future prospects, income and
occupancy. Between the year 2010 and
2012, nearly $1.4 Trillion dollars worth of commercial mortgages are planned to
balloon, which has been seen as one of the biggest retreats of capital in the
market. Lenders do not want to lend and if they want to, it is at high levels
and costs, which make no sense, if capital needs of different borrowers are
thoroughly observed.
It has been recognized by the Federal Government
that a great disaster is threatening the Commercial Mortgage market. It has
been mentioned by the FED that there is a single way of stabilizing the market
and that is to engage a combination of workouts and modifications. A white
paper also has been issued by the FDIC, which set forth twelve scenarios, under
which a bank is able to modify a loan.
It is quite veracious that the purchaser likes
to stay in possession of the property and is willing to own as well as operate
the building. Money, energy, effort and a significant amount of time has been
spent by borrowers for the management of the property. No Judgments filed as
the process of loan modification starts outside of the court system. The medication
process stands from offering and helps both the lender and borrower to
compromise on issues.
Great Falls Commercial Lending
1 Howe Ave, Suite 303
Passaic, NJ, 07055
Tel. 973-767-2850
Fax. 1-877-767-2150
info@gfcommerciallending.com
www.gfcommerciallending.com
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