Stalled Loan Financing: What Can a Commercial Mortgage Broker Do? | Riverdale Funding

Stalled Loan Financing: What Can a Commercial Mortgage Broker Do?

Nov 16, 2016

A borrower comes to you with what you think is a fairly straightforward request for a commercial mortgage loan.  You help them get all of their paperwork together.  You contact your commercial lenders, submit the paperwork, and you think you're all set.  Over the next few weeks, you get a few additional questions from the lender, which you immediately reply to with the corresponding information.  However, months later, still no loan closing in sight and your calls to the bank are put through to voicemail. You realize you're stalled.  Now What?

Stalled Loan Financing: What Exactly Is the Issue?


There are many elements of a commercial real estate loan that are date-dependent.  Loans can be milestone contingent or contain balloon payments that must be met.  A bank's interest rate lock can place pressure on the borrower to close before the specified date or risk putting an entire project at risk.  A good faith deposit has deadlines for certain actions or events, otherwise there is a risk of forfeiture.  If financing stalls then the borrower may face a host of issues, most significantly leading to the loss of capital or favorable terms. 


A Stalled Loan Can Have Many Causes:


  • Qualification Issues - Sometimes a commercial loan gets all the way to underwriting with all of the boxes checked and the standard criteria met, then suddenly things seem to stall.  When you do hear from the lender, they mention that they need additional information to make a decision.  A lender's risk tolerance is structured in context with the other commercial loans they have already accepted.  The atmosphere can change as other borrowers refinance or get behind on payments. 
  • Loan Structure Issues - Private money lenders will often join forces to combine multiple types of capital in an effort to structure a large commercial loan. The capital of all these different lenders is organized into a structure called the "capital stack".  Each layer of the stack represents a varying set of legal rights to the assets and income of the loan.  A lender's position in the capital stack determines who receives priority of payment in the event of a default.  Sometimes banks will offer other lenders the ability to participate in a commercial loan or they will assign them a portion of it.  If two banks participate in a loan then the original lender maintains ownership of the loan but if a portion of the loan is assigned then the ownership is shared between the two lenders.  If the originating lender's financing or risk calculations specify that a portion of the loan must be sold or shared with other banks then this additional process can cause the loan to stall, particularly if they have trouble finding a buyer. 
  • Secondary Mortgage Market Uncertainty - The secondary mortgage market is mostly composed of large, third party investors known as aggregators.  That aggregator packages loans into various mortgage-backed securities.  These aggregators for loans are sensitive to changes in interest rates, inflation data, and property valuations.  If there is a great deal of uncertainty in any of these areas then it may cause the loan to stall.  As the value of real estate dropped rapidly in 2008 and inter-bank liquidity dried up, many pending loans stalled as the secondary mortgage market struggled to understand the changing landscape.  While this is an example of the secondary mortgage market at its most extreme, smaller disruptions can still cause commercial loans to stall.
  • Interest Rate Increases - If federal interest rates are expected to increase then lenders will often tighten their standards.  Traditional lenders have approval processes which are several months long.  Pending commercial loans can easily stall if an interest rate hike was not figured into the original calculations and it suddenly is confirmed.  The commercial lender may need to go back and recalculate. 
  • Seasonal Variability - Most lenders have annual internal goals in the form of loan amounts or volume of deals that they need to complete each year.  If you submit a loan towards year-end, your loan approval may be stalled until the following year when the lender issues new goals for the year.


Stalling Out: Next Steps


If you have tried to place a commercial loan and it's stalled you have a number of different options.  You can certainly try another bank but dependent on what the cause of your stall is, it may not help.  This process will also require a considerable time investment since 2-3 months is the standard duration for loan processing with conventional lenders.  Loan application fees (including originations fees), service fees, and underwriting fees will add up with each application submission.   A commercial borrower with fair or bad credit may need to explore additional options such as private commercial lenders and asset-based lenders. Private money lenders such as Riverdale Funding can speed along the loan approval process because they have a smaller, more flexible internal set-up.  A commercial bridge loan can help a project to meet its milestones and deadlines, keeping the window of opportunity open. 


Contact Our Commercial Mortgage Lenders Today


Contact Riverdale Funding, LLC. today if you need to find a commercial mortgage after a loan application stalls.