Apartment Lenders and Multifamily Lenders
There are several different kinds of apartment lenders. Some of which are experiencing the most demand in the history of their business, others are completely out of the market. Knowing which lender to take your apartment loan request to, is critical to a successful closing.
The conduit or CMBS apartment lenders that dominated the market just one year ago are gone. These lenders are dependent on a healthy secondary market, which has all but crumbled. The Mortgage Bankers Association recently came out with a report stating that the “secondary market is broken.” And no one really knows if or when it will return. One of the main issues is the lack buyers of the mortgage backed securities that are offered on the secondary market. These institutions (the buyers) have been burned badly and will likely remember this for a long time.
Conventional Multifamily Lender
Conventional lenders for apartment buildings are experiencing some tough times as well, but there still are some banks and lenders that are healthy enough to do loans with decent terms. The key here is knowing which banks and lenders are still strong, and that are really closing loans. Terms, rates, fixed periods range widely from one source to the next, depending mostly on their balance sheet and real appetite for new loans.
Probably 50% of conventional apartment lenders are no longer looking at new loan requests. Of the other 50% many are offering such ridiculous terms, like max 40% financing, that you just want to ask “why bother”?
Government Back Apartment Lenders
If you were looking for a happy ending to this article, here it is. Apartment lenders that are set up with the government backed programs are viable, and still doing deals at the terms your use to. 80% to 85% financing on purchases and 75% -80% loan to value on refinance are still available. Debt coverage ratios are very aggressive at 1.17. 30 year fixed rates and even a 35 year fixed rate in the low 6%’s to upper 5% is still an option…
These programs have taken some criticism over the years due to length of time to close, and expense. The agencies have done a lot to improve their system though, and it is common to get multifamily loans closed in a more typical time frame of 60 days, though 120 days is still a reality with some programs (depending on which agency).
The expense is still a valid concern, for example on a HUD apartment loans the borrower can expect to pay Uncle Sam APR 3% of the loan amount out of the proceeds of the loan. However when compared to the borrowers other real options, which at the moment are very slim (to nonexistent), it doesn’t look that bad. Also, the long term fixed rates make it easier to swallow as the borrower will never have to face a balloon or having their rate adjust to such a high levels that it puts them underwater from a DCR perspective.
Primary Mortgage Lenders – Correspondent Lender, Wholesale Lender And A Mortgage Broker
A bank or a mortgage company, which offers home loans can be referred to as a ‘mortgage lender’. There are eight different categories of primary mortgage lenders.
These are correspondent lenders, mortgage brokers, wholesale lenders, direct lenders, portfolio lenders, mortgage bankers, online mortgage lenders, and sub-prime mortgage lenders.
Here, the first three categories are described in detail.
o Correspondent Lender:
An institution or an organization that can authorize loans on behalf of a mortgage lender is referred to as a ‘correspondent lender’.
In other words, the correspondent lenders act as agents or sponsors of several lenders during the origination and closing of loans. They are the ones who underwrite the loan.
They also service the loans for the lenders.
They do not group the mortgages for resale. Instead, they sell them individually. This is how they differ from mortgage brokers and other lenders.
o Mortgage Broker:
An individual or an organization that arranges financing for the borrowers through portfolio lenders, mortgage bankers or any other source is called a ‘mortgage broker’.
A mortgage broker, thus, acts as an intermediary between the lenders and the borrowers.
These brokers help the borrowers to choose the appropriate loan program, fill out the loan applications, and locate a lender who can fund the loan. They also help to obtain the credit report, appraisal etc.
o Wholesale Lender:
Any institution that funds and underwrites mortgage loans is referred to as a ‘wholesale lender’. It also services the loan.
However, a wholesale lender does not deal with the borrowers directly in the retail end of the market. Instead, it deals with a third party, which can be a mortgage broker.
A wholesale lender who keeps some or all of its mortgages is called as a ‘portfolio lender’. On the other hand, the wholesale lender that sells its mortgages is a ‘mortgage banker’.
Other categories of primary mortgage lenders are described in detail in other related articles.