Commercial Loans and Fun Blog

The Commercial Loans They Made Were Darned Good

Lehman Brothers got screwed. They filed for bankruptcy today because foolish regulators forced Lehman Brothers to mark the commercial real estate loans in their portfolio to market. Because the market for subprime commercial loans has completely frozen up, Lehman Brothers became insolvent.

It's a darned shame. For the last seven years my commercial mortgage company, Blackburne & Brown Mortgage Company, Inc., has been competing against Lehman Brothers for small, subprime commercial loans. Since their rates were better than ours, Lehman Brothers was able to cream the market for the best quality subprime commercial loans. I never knew them to make a foolish loan.

When the dust all settles and Lehman's assets are scattered to the four winds, history will show that this was a darned fine portfolio. They were earning around 9.5% on a portfolio of commercial first mortgage loans with an average loan-to-value ratio of 68% to borrowers with fairly decent credit. An investor could buy that entire portfolio at par and beat the pants off of most competing investments. These were not high-LTV loans to flakey borrowers on grossly over-valued homes. These are darned good assets.

If anyone wants to sell a portfolio of Lehman's subprime commercial loans, Blackburne & Brown is definitely a buyer. Please contact me, George Blackburne, immediately.

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Need a commercial real estate loan? You can apply to hundreds of banks and subprime commercial real estate lenders in just four minutes using C-Loans.com. And C-Loans is free!

September 23, 2020

Below is the Advice I Gave To 
a Struggling Commercial Mortgage Broker

After writing this blog article waaay back in 2008, I actually sat down and wrote an entire training course devoted to keeping new commercial mortgage brokers from making the same bone-headed mistakes that I cluelessly made forty years ago, when I first entered this industry.  I call it my Practice Course, and I consider it my finest work.  It contains over sixty lessons.

 

 

 

 

Here’s my advice:

1. Stick to small commercial permanent loans. Do not work on anything larger than $3 million unless you have a special relationship with the borrower (former client). Small commercial loans are the ones that close and feed your family.
   
   
2. New commercial mortgage brokers almost never close large loans. Why would a filthy rich investor with perfect credit and millions of dollars in equity work with a mortgage broker who is obviously new to the business? He'll spot the new broker's inexperience in the first few minutes of conversation. So the large deals that new mortgage brokers get are almost always hopeless. And even if the perfect, large deal ever did fall in their laps (one chance in a million), most new brokers don't yet have a personal relationship with the top loan officers at the huge banks. These top dogs are very, very, VERY cliquish. They don't fight hard in Loan Committee for newbies. So don't waste precious time trying to place large loans ... unless you have 18 small commercial permanent loans in process that will feed your family.Give me a $300,000 lead over a $30 million lead any day!  Small deals close. Large deals waste your time.
   
   
3. Do NOT waste precious time working on construction loans. The world has more enough homes and commercial buildings right now. Ninety-nine percent of the time, when a developer approaches a mortgage broker for help placing a construction loan, the developer does not have enough cash into the deal to qualify for a construction loan. He can't cover 20% of the construction costs. Do not work on construction loans! The deals you want are the permanent loans and the bridge loans.
   
   
4. Never waste a minute on international loans. They never close.  Ever. Ever!  There is a huge tax issue.
   
   
5. Read my blog daily for tips. http://www.blog.c-loans.com.  Go back and read all 100 of the old articles.
   
   
6. Build a databank of referral sources (commercial brokers, residential mortgage brokers, bankers, property managers, estate planners, etc.) and advertise to them by snail mail or email regularly.  Pepper your newsletters with TONS and TONS and even more TONS of jokes and fun stuff.  Condition your referral sources to look forward to your emails.
   
   
7. Your newsletter does NOT have to fancy.  A funny pic (see above), along with your signature block, with the words, "commercial loans" prominently displayed, will work just fine.
   
   
8. Learn how to create your loan packages using PDF’s.  This saves on shipping and allows you to submit a deal to multiple lenders in seconds.
   
   
9. Start buying leads from C-Loans. They’re only around $2 apiece (plus 37.5 bps. on closing). http://www.c-loans.com/leads.html
   
   
10. Get a signed fee agreement on every deal, but don’t ask the borrower to sign it until you’ve run him around for weeks fetching documents.  Wait until the borrower is desperate and hungry before presenting your agreement.
    
    
11. Don’t waste time working on deals with a low probability of closing.  Instead, use every free minute to meet new bankers and commercial brokers (realtors).  Add them to your email list.
    
    
12. Realize that your closing rate will never exceed 30%.  This means you need to have 15 to 18 loans in process at all times. Do you have 18 loans in process right now?  If not, get busy building your email list.
    
    
13. Only work with strong loan officers.  Loan Committee is a process where the decision-maker almost always says, "No", initially.  Then the loan officer has to use logic, fundamentals, oratory skills, and strength of will to push the deal through to approval.  If the loan officer at the bank who has your deal sounds and acts like a wimp, ask for the package back and then submit the same deal to a stronger loan officer at the same bank.
    
    
14. Grasp the concept that commercial lenders make loans for their friends. Become buddies with the top loan officers at various banks.  They will then fight for your deal in Loan Committee.  This may be my most important tip.
    
    

Learn the business! If you truly know how to underwrite commercial real estate loans, you won't waste countless hours working on hopeless deals.  Hundreds of graduates of my commercial mortgage training course now earn more money than the average physician.  You'll learn an entire profession for a lousy $499.  Hellooo?  Is this a trick question?*

 

 

 

Need a lender for your commercial deal?  You can submit your commercial real estate loan to to 750 commercial lenders in just four minutes using C-Loans.com. And C-Loans.com is free.  Click here.

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*  I always loved that line.  It comes come from the Ghostbusters II movie, when a demon possesses the body of a very young (40 years ago) and beautiful Sigourney Weaver.  Sigourney is laying on the bed seductively, and she asks the whacky Bill Murray, "Do you want this body?"  Bill turns to the movie audience and famously replies, "Is this a trick question?" :-)

 

 

 

 

Fraudulent Commercial Lenders Often Steal Application Fees

Every year commercial real estate borrowers lose millions of dollars to con men posing as commercial real estate lenders. Here is how the scam work:

In order to get a commercial loan, borrowers have to give large application fees to commercial lenders to pay for the appraisal, toxic report, title work and legal fees. These application fees run from $3,500 to $250,000. In most cases, these are legitimate fees required by bona fide commercial lenders to do their investigations.

But sometimes con men pose as commercial real estate lenders. They're not a bank. They don't operate a mortgage investment fund. They don't syndicate wealthy private investors to make hard money commercial real estate loans. Nope. These fraudulent commercial mortgage companies usually don't have a dime to lend. But they have impressive letterhead and a great sales ability.

These con men will buy commercial mortgage leads from some internet source. They'll then call the borrower and say that they make commercial loans. After the borrower has submitted his commercial real estate loan application, the "lender" will then issue a conditional commitment letter (term sheet) with great terms - often just 6% interest in a 7.5% market - that calls for a large application fee.

The borrower is thrilled to get the term sheet and sends in his deposit.  After the check clears, the borrower never hears from the "lender" again. The borrower will call and call, but all he'll get is the sound of a telephone ringing or an answering machine. The borrower will leave repeated messages that eventually escalate to legal threats, but still he'll get get no response.

Eventually the borrower will contact the state authorities, but unfortunately few states ever follow up on commercial loan fraud. It's a white collar crime. Heaven help the ghetto kid who steals $1,000 for dope. The police will track him down and send him away to jail. But if some hustler cons a commercial property investor out of a $50,000 loan fee, his complaint will often rot forever in some unworked file.

So what should a commercial borrower do to avoid falling prey to this con?

1. Be suspicious of any commercial loan offer with terms far superior to everyone else. If a commercial lender is quoting 6.0% in a 7.5% market, the commercial borrower should ask himself, "What lender is at 6.125% that forced this lender to drop his rate to 6.0% in order to get the deal?" Legitimate commercial lenders don't just lower their rates to 6.0% because they are nice guys. C'mon. Use some common sense here.
2. Google your commercial lender. Many times complaints from similar victims will show up in discussion groups.
3. Look at the "lender's" web site. Legitimate commercial lenders will have extensive and expensive web sites, not just three or four pages.
4. Where does this "lender" get his dough to lend? Banks and savings and loan associations get their dough from deposits. Life companies get their dough from insurance premiums. Hard money lenders get their dough from private investors. If this "lender" claims to be a hard money lender, his web site should have a bunch of pages devoted to enticing private investors to invest with his company.
5. Be more suspicious if the lender is a "mortgage company", "capital company" or a "funding company" rather than a bank.  He could be legitimate, but you'll need to do more due diligence.
6. I am always suspicious of any "lender" pretending to be a bank when he is not. Tipoffs include the words "Banc" or "Something Bankers" in the company name. The names of legitimate banks almost always end with the word "Bank".
7. Trust your instincts. If the deal sounds too good to be true, it probably isn't. If the "lender" is too easy on the paperwork or the length of the procedure, be on guard.
8. Does the "lender" have a warm body answering the phone or just an answering machine?
9. One final point. A very wise man once told me that the way to spot a con man in a crowd of 100 people. Ask yourself which of these guys are you SURE is not the con man ... and he will be the con man! They are experts at projecting trustability.

Don't be a victim. There are hundreds of these advance fee scammers at work in the commercial real estate mortgage marketplace.

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You can apply to hundreds of commercial real estate lenders for free using C-Loans.com. Just click here.

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Your comments are invited.

Wall Street's Departure is Private Trust Deed Investors' Gain

Recently Lehman Brothers Small Business Finance left the subprime commercial mortgage market. Bayview Financial, which includes Commercial Direct, Interbay and Siverhill Financial, has dramatically curtailed its subprime commercial mortgage lending as well. Wall Street has essentially abandoned subprime commercial mortgage lending.

As a result, Blackburne & Brown, a subprime commercial hard money broker that is still in the market, is enjoying a wonderful influx of subprime commercial mortgage requests. It's simply marvelously. We're getting numerous commercial loan requests that easily would have been bankable eight months ago.

If you are an accredited investor residing in California, and if you have been considering investing in first trust deeds, now is a very interesting time. The quality of the first trust deed that a private investor can find these days is unusually attractive. Many of the better quality deals that used to be going to Wall Street and to the banks are now being forced to go to hard money brokers.

To sign up to receive trust deed investment offerings, please click here. To read more about how best to invest in trust deeds, please read my blog devoted to trust deed investing.

Feel free to post your comments or ask some questions by clicking on the comment button below.

Why the Recovery Will Take So Long

In a recent excellent blog article entitled The Death of Real Estate Investing, Susan Lassiter-Lyons pointed out that mortgage financing for investors and real estate speculators is drying up.

Investors are being forced to pay all cash to buy up foreclosures, which greatly curtails the number of investors bidding on these properties. The fewer the number of investors competing to buy these REO (Real Estate Owned; i.e., bank foreclosures), the lower the price these REO's will fetch.

I then wrote a blog article with the same title that expanded on Susan's insightful theme. A reader asks:

Where can I get a copy of your (my) book?

My blog article raised the spectre of crushing deflation and referred to my new book, The Reverse Multiplier Effect - When Crushing Deflation Destroys America. You can order a copy here.

Why will the current depression last so long?

Japan's deflationary depression has already lasted 18 years, and the Japanese people entered their depression with large amounts of savings. The magnitude of any depression is proportional to the size of the credit creation binge preceeding it. Our debt creation bubble was a whopper. It may takes decades to liquidate all of this debt.

What is the outlook for the commercial real estate finance industry?

As short as one year ago, the conduits were making more than 50% of all new commercial real estate loans. Now this industry is just a shell of its former self.

The money center banks were all involved in the securitization game, so when the secondary market for CMBS loans died overnight, they were left holding far more commercial real estate loans than they wished. For the time being, most of the big banks will be originating just a few very clean deals.

The small banks - the ones not hurt when the CMBS market dried up - are still lending. But they only have so much money.

Lehman Brothers, which has a portfolio of $200 billion of subprime commercial loans, stopped originating new deals this month. Bayview Financial, another huge institutional originator of subprime commercial loans, has cut its lending volume by at least 70%.

Subprime and even prime commercial loans are now flowing to the hard money lenders. Unfortunately many hard money commercial lenders are stuck with huge portfolios of non-performing construction and land loans.

Fortunately my own hard money shop, Blackburne & Brown, never made any construction loans, and we made very few land loans. We are still actively arranging loans.

But the bottom line is that the entire commercial real estate finance industry is severely depressed. And if commercial lenders aren't lending, this will depress the value of commercial real estate. I expanded on this in my other blog today.

The commercial loans securing most commercial mortgage-backed securities are performing quite well. The delinquency rate is less than 1.5%. Why is the CMBS market getting so badly slammed when the main problem is in the subprime residential loan sector?

The issue is one of confidence in the rating agencies. The rating agencies issued some wildly over-optimistic ratings on residential mortgage-backed securities. Investors in these residential bonds are now getting slaughtered. Commercial mortgage-backed securities are guilty by association.

But there is another issue. The collapse of residential real estate has triggered a recession that will probably lead to a deflationary depression. All real estate could get clobbered in this depression, even if commercial real estate fares far better than residential real estate.

Some final comments:

There is one asset class about which I am very bullish - farm land. But I am very bearish on all other classes of real estate.

I debated selling my little mortgage company office building here in Indiana in anticipation of the real estate bear market; but I decided that there is always a chance that the Fed could drop trillions from helicopters. My advice to you is to only buy real estate that you're going to use. As explained in my book, the deflationary forces on all real estate are far more prodigous than most investors would imagine.

Some Follow-Up Comments to a Brilliant Blog Post By Susan Lassiter-Lyons

Attention Ben Bernanke and the U.S. Treasury: In a recent blog post called The Death of Real Estate Investing, Susan Lassiter-Lyons has brought up a very important issue.

Unless the Fed and the Treasury develops some sort of financing mechanism to help investors and speculators buy real estate using high-leverage mortgage financing at favorable rates, this meltdown in real estate values is going to continue. And its not inflation that keeps Ben Bernanke up at night ... its crushing deflation.

In my recent book, The Reverse Multiplier Effect - When Crushing Deflation Destroys America, our banks get scared and stop lending. Over a trillion dollars in annual payments on existing loans kept flowing back to the banks, but the banks stopped rolling over their interest receipts into new loans.

Since the multiplier effect today is around 20, and since the multiplier effect works in reverse, the money supply of the United States started to disappear. Homes fell over 70% in value, and the banks started foreclosing on most of the homes in the United States.

Well, folks, I fear the scenario that I described in my book may be coming true. The book was written in early 2007, when gas prices were $2 per gallon. I predicted $6 gas and a complete real estate estate meltdown, even more dire than that of today, by the year 2010.

Fortunately Ben Bernanke and the Fed are very aware of the dangers of deflation. By propping up Citibank, Countrywide, Bear Stearns, and now Fannie Mae and Freddie Mac, Ben Bernanke has done a masterful job of preserving our institutions. We are probably in a great depression right now, and Americans will probably have to endure a precipitous decline in their standard of living over the next 15 years. Ben Bernanke can only do so much.

But Mr. Bernanke, if you're out there, please pay attention to Susan Lassiter-Lyons brilliant blog post.If you want to save your banks by stopping the decline in real estate values, the country will need non-owner and commercial financing. It's wealthy investors who have the incentive and the courage to buy foreclosed properties in a declining market. It is these wealthy investors who have the dough to make timely payments on these new mortgages. They just need some leverage and a reasonable interest rate.

Condo and Housing Projects Have the "Coodies"

If you're a commercial real estate loan broker, you shouldn't waste even five minutes working on a construction loan request for a residential subdivision or a residential condominium subdivision right now. These deals are almost impossible to finance in today's market. In the minds of most commercial real estate lenders, such constructions loans have the black plague or the coodies right now.

If you're a real estate developer, and you are the sponsor of a broken residential condo project or a stalled residential subdivision, you are going to need more equity. You only have a few more months before the last of your interest reserve is consumed. Don't waste time trying to find some commercial construction lender foolish enough to add another 50 homes to the current glut of unsold homes.

Instead, focus your energy on finding some wealthy private investors to help you de-leverage your land. Maybe you could cut a deal with the bank that has the existing first mortgage. "I'll reduce your loan balance, Mr. Banker, by 50% if you discount your total loan by 25%." Then you could use this discount to attract a new equity partner.

Your sales pitch to a new equity investor might be: "If you bring in $250,000 in equity, Mr. Investor, the bank will reduce it's current loan of $625,000 to just $500,000 - and we'll pay down that $500,000 to just $250,000.  Then my development company will pay you a preferred annual return of 14% in three years when the land is once again ripe for development."

So where does a developer find a private investor to help him carry a stalled residential housing project. You should try advertising on LoopNet.com.  Call their advertising department and tell them what you're looking to do.

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Do you have a residential subdivision construction loan that still makes sense in today's market?  If so, you can submit it to hundreds of commercial construction lenders by using C-Loans.com. And C-Loans is free!