The Mortgage Broker Value

Not surprisingly, borrowers often default to their own Banker. And why not? It is often perceived an established and comfortable relationship. Perhaps it is viewed as the path of least resistance.

But is it the right lender for the borrower’s current specific needs? Perhaps not.

Borrower’s may think that all institutional lenders are pretty much the same, offering comparable rates, and standardized borrowing terms. In fact, this is rarely the case.

Lenders often prefer one asset class over another, they may have a particular need for one type of loan, and a specific length of loan term may be desirable, for funds matching purposes.

Real estate risk is a fact for real estate lenders. How they mitigate this risk often differs, however. It may be stress testing interest rates during the approval process. Sophisticated risk pricing models may be used, having regard to previous loss experiences. The lender may rely significantly on collateral value or guarantees. The conditions precedent to funding will often differ from lender to lender.

We had the pleasure last year in advising a client who had 3 sizable real estate assets, in 3 quite distinct asset classes. The borrower’s loan amount requirements were significant; however, they were flexible on loan structure. Accordingly, we sought out competitive, but differing deal structures. Our goal was to provide a competitive array of options. Several “A” class lenders were approached, several/most of whom this borrower had no previous experience with. We shortened the list to 5 lenders and received term sheets from each. Each Offer was competitive on a stand-alone basis, but they differed quite substantially, in the following ways:

  • Loans were either stand alone, or blanket loans, or some combination.
  • Length of terms offered, differed by asset class.
  • There was as much as a 75 bps rate difference, from highest to lowest Offer.
  • The amortization period depending upon asset class, ranged from 15 to 25 years.
  • Loan amounts on individual assets differed as much as 20%.
  • Third party reporting requirements differed between lenders.
  • There was a combination of fixed vs. floating rate loan structures.
  • Recourse was limited by some lenders, on select assets, or waived entirely, upon a higher rate structure.

These variances are striking, yet each of the 5 lenders were considering the precise same asset, at the same time, with common supporting information from which to base their analysis. How was the borrower to know which Offer to exercise? As mortgage professionals, we can add value by helping the borrower to consider both their immediate and longer-term strategic requirements, in the context of their overall real estate portfolio needs. This was precisely how this borrower landed on the most appropriate offer for their circumstances. In this case we presented different, yet competitive, and uniquely structured options for the borrower’s consideration. Consider us when next in the market for financing, leveraging an industry professional’s knowledge is a tremendous value proposition.