Navigating the waters of commercial real estate financing can be daunting. Understanding the types of loans, the types of providers and terms used in the financing world is the first step in understanding what type of financing is right for your commercial real estate venture.
Here is a recap of the most common types of commercial real estate loans made over the last ten years.
Portfolio Loan:
These are loans made by banks, life companies, thrifts, etc. The loan stays on the lenders books and all approval rights are retained. The borrower will typically only have one contact throughout the life of the loan.
Fannie Mae:
Fannie Mae loans will look just like a portfolio loan to the borrower with one exception. Fannie Mae and the lender typically share in the losses and hence Fannie Mae will concurrently need to approve some requests (assumptions, waivers, modifications, restructures), but the borrowers contact throughout the life of the loan remains the lender/servicer.
FHA:
FHA loans also look like portfolio loans to the borrower as long as the loan is performing. These loans are on the lender’s books just like a portfolio loan, however FHA provides mortgage insurance for the loan. If the loan is delinquent, it is typically assigned to FHA and FHA becomes the point of contact from that point forward.
Securitized Loan:
The securitized loan is made by both typical portfolio lenders (as described above) and non-portfolio lenders. Non-portfolio lenders make loans and sell them, but they don’t retain the loans on their books. The loan is pooled along with other loans and the bonds are sold to investors. The entire structure is governed by IRS regulations known as the REMIC rules. The day to day contact on these loans may or may not be the original lender. Various approval authorities (assumptions, modifications, restructures, etc.) do not lie with the day to day servicer and the borrower may not have direct contact with the ultimate entity making the decision. This causes a “black hole” feeling: the borrower often does not know who is ultimately making the decisions. They may often not even be able to dialogue with that entity.
The most common types of commercial real estate financing are portfolio loans, fannie mae loans, FHA loans and securitized loans For more information on commercial real estate financing and loan modification options, visit us online at 1stservicesolutions.com.