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Fannie Mae Initiates Commercial Loan Modification Program

Fannie Mae is now offering a new program aimed exclusively at commercial real estate owners who are unable to make their monthly mortgage payments. The new program called the Payment Reduction Plan (PRP) comes as welcome relief to many apartment building, office building and shopping center owners who have seen drastic decreases in vacancies over the past twelve months. These vacancies have seriously impeded commercial property owners’ ability to pay their mortgages. PRP allows commercial owners to negotiate with their loan servicer for up to a 30% reduction on their commercial mortgage payments.

According to the Fannie Mae website the “The PRP provides a borrower with temporary payment relief while the servicer and borrower work together to find the appropriate permanent foreclosure prevention solution. PRP offers an additional foreclosure prevention solution for borrowers who are ineligible for the Home Affordable Modification Program (HAMP).”

Under the PRP monthly commercial loan payments can be reduced up to 30% off of the total principal and interest only. The program is strictly for non owner occupied and investment properties.

The Fannie Mae website explains that “during the maximum six month period of forbearance, the servicer should work with the borrower to identify the feasibility of, and implement, a more permanent foreclosure prevention alternative. The servicer should evaluate and identify a permanent solution during the first three months of the forbearance period and should implement the alternative by the end of the sixth month.”

Commercial real estate owners who are considering hiring an attorney to handle their commercial loan modification should investigate the background and experience of the person they hiring so that they know in advance what to expect.

In my experience as a commercial loan modification specialist I have found that many attorneys who advertise themselves as commercial loan modification attorneys actually have very little experience performing successful loan workouts. Unfortunately, as many people know, there is an over supply of attorneys in the United States. This forces many lawyers to follow the latest and hottest trends in order to get new business and survive. You may see the same people who used to do accident and injury work now advertising their services as loss mitigation specialists because it has become such a needed service. For this reason the commercial real estate owner should definitely do their homework and research the actual experience of the person they are hiring.

What You Should Expect from a Commercial Loan Modification Attorney:

1. A Money Back Guarantee: Is your attorney willing to give a complete refund if he or she is unable to successfully modify your commercial mortgage?  Very few commercial loan workout companies are offering a money back guarantee but it is will worth the research to find a company or attorney that is willing to offer a written money back guarantee if they are unable to modify your loan.
2. A Written Plan or Proposal:  Make sure that your commercial loan workout attorney gives you a very detailed written proposal of all of the services that he or she is going to perform on your behalf.  Commercial loan modification can be a complicated process that requires many hours of work and research.
3. Satisfied Clients. Ask your commercial loan modification attorney if they can give you the contact information for any clients that they have successfully helped to modify their commercial loans.  They may not be able to give you any references because of their privacy policy or because of attorney client privilege but it can’t hurt to ask.  An attorney who successfully modified the commercial loans of many clients surely must have one or two who would agree to attest to the experience and results that had with the attorney who helped them.
4. Who Does the Work? Find out if your commercial loan modification attorney will be doing the negotiating and processing him or her self.  Many attorneys are too busy to actually perform the important work themselves and they may be outsourcing your commercial loan modification to a third party.  You may be able to save money and time by cutting out the middleman and going directly to the company that performs the negotiation and works with the bank.
   

***Below are some questions that Lori McMahon answered from a student who attended last night’s Apartment Building Investing Seminar

Hello Lori,

My name is TA Davis and I was an audience guest on this evening webinar hosted by Ted Karsh from ApartmentBuildingInvestor.com.

First, thank you for sharing your time and expertise on creating Apartment Building Investing Executive Summaries. It was truley very informative!

I am a newbie in commercial investing and see myself really focused on this aspect of the industry. Again, THANK YOU for clearing some of the fog!

Here are the questions that I thought of as I listened this evening:

1. At what point do you begin putting together the Executive Summary? ie before/during/after contract has been submitted?

It’s different every time. Before is fine as long we put that in as the status on the Funding Opportunity Page. Many of clients have wanted to find out if they could get any interest prior to signing the Contract to Purchase. Anytime is good as long as it is directly after you sign the contract because you must understand that in these times, it is taking anywhere from 45 to 90 days for funding…

2. To whom are you giving the Executive Summary? I believe I heard you mention nonconventional lenders.

You can submit the summaries to private investors you network with or funding firms you locate on the internet. If you’d like LJ Commercial Property Services to submit, I would let my partner, J.R. review the property Executive Summary and if he feels we have an investor/firm that would be interested, he would then let you know and we would move forward on your behalf. But, it is important that you, yourself learn to network to get it out yourself in case we don’t have a particular funder/investor for your situation.

3. Do you recommend using a particular software? If so, what is the name?

I don’t use any software creation packages so unfortunately, I cannot help you in this area. Software can’t possibly keep up with the ever-changing market and investors/funding firms criteria can change daily - I’ve seen it - believe me!!

4. Who supplies the information to you about the property?

The client supplies the information regarding the property itself. I put it together in a presentable package. I supply the demographics, property highlights, market highlights and comps. These have to be researched for each and every package I create since those items are in constant change as well.

5. I understood that one does NOT have to be located in the same state as the property to do an Executive Summary. How then are you able to know if the information that is gathered is accurate?

I only work off current market reports and use demographics from several areas as well as my own internet search to be sure all information is current. I don’t copy and paste from one summary to another - I start each one brand new because, it is! The property information is the client’s responsibility to get for me - unit mix, income & expenses, etc.

6. How much time (in general) does it take for a decision to be made once a summary is submitted?

Some LOI’s are received within a few days…others can take a month! It all depends on too many factors so this question is too open-ended for me.

7. Do you shop the summary to more than 1 lender (at the same time/upon rejection) or is this NOT receommended ?

The Executive Summaries that I actually submit on behalf of the client are submitted at approx. 5 to 6 per day until an acceptable LOI is issued or it is determined that funding will have to be found elsewhere.

I hope I am not going too crazy with questions but I am REALLY interested in becoming a SUCCESS story (thru commercial real estate) of overcoming adversities, fears, and making positive change in my life.