Commercial Lending Capital

For those of us inexperienced in the operation of computers, the title of this article might not make sense. In computer terms this means that we’re going to force a reset of the computer.

It’s been said by many a wise man before that man is really an organic computer. The only difference between man and machine, is that man is generally has resistance to reset themselves. I have been deeply troubled by the number of suicides by good friends and key players in the financing industry that have occurred over the last 12 months. It cannot be argued that this indeed was a hard reset by them. It is my belief that there are better ways to do this.

For those in the mortgage industry.

I think that it is well recognized that the industry has hit a threshold. The industry is in considerable trouble and regulators will be prone to over react and then, as they have done throughout all time, lenders and entities that are in the securitization market will figure out how to work around these regulations and we will be facing the same issues again 10 years from now. Having said all of this, the day of the 18-year-old, sitting in his garage, dressed only in underwear and making $25,000 a month could be over in this business. I think there might be a better solution to the problem and that is why I’m here to discuss some possible solutions with you.

Countercyclical is a term used to describe operating outside the effects of what the current cycle is producing. We will spend some time considering and talking about some counter-cyclical activities that we can put some brain work into.

Mortgage Modifications: it is no secret that mortgage modifications have been under fire. The folks that got into this business deftly were counter-cyclical to putting people into loans. Unfortunately, the industry was pounded by inexperienced personnel that raised false hopes with some lies tossed in. In most cases, enter my own personal experience, the consumer was generally better able to make these modifications than a disinterested third-party. Now, regulators are hot and heavy after this operation in it seems like this business may be in serious trouble. There will be those that argue the point, however, I have been reading quite a bit of material from the various Bar Associations and trade attorneys and to me it is clear that this is a business to stay clear of.

Debt Settlement: debt settlement is not a new business; however with the changes in bankruptcy laws, it is an ever increasing business. Debt settlement has been around for quite some time since Congress has been initiating changes to the bankruptcy code that made many previously dischargeable debts non-nonchargeable. What this means to the consumer is that not only did they get to go through the bankruptcy process,but many of the debts that were dragging them down still remained after the bankruptcy. Debt settlement companies will offer reduced payment amounts or reduced principal amounts in full payment to creditors in lieu of not collecting anything further or forcing the collection into a legal case. Collection cases that make it into a legal status have very small collection rates while at the same time have very high default judgment rates (the defendant does not appear in Court although the Creditor spent money getting the case into court. There are some marketing challenges to this business however, like anything else, if you put enough work into the business this is a good avenue of achieving some level of success.

Commercial Lending: commercial lending really came on the scene about 6 to 7 years ago due to the mainstreaming of the activity by some of my personal heroes at Interbay Funding, Silver Hill Financial, Velocity Commercial, and Bayview Lending. These were really the first firms that came along and offered a work flow management system whereby a broker could efficiently predict an outcome to a transaction. Like many other avenues in this world today this business has also undergone its stressors. The wonderful part about this business is that it is making a significant rebound in the marketplace with some of the changes made by Congress driven by our President. The largest detrimental aspect of this business was that a huge number of residential brokers came into the marketplace and created hysteria by not also creating an educational experience for them. Education in the commercial lending business is vitally important, because there are so many workflow items. A typical transaction in the residential marketplace might only involve 9 to 10 steps. In the commercial lending arena, transactions are anywhere from 117 to 200 work flow steps from the time an originator first speaks to a business development manager to the time that a loan decision or loan funding occurs. This process is not for the faint of heart however with correct training and with a correct outlook originators can prosper dimensionally even in this marketplace.

Commercial Debt Settlement: commercial debt settlement is a brand-new business just coming into the marketplace. This business will again take a significant educational reset for those coming from the mortgage industry into this line of work. Commercial debt settlement will require a different mindset than those doing consumer debt settlement as it is not as easy as just calling Visa and asking them if they will accept $2000 on a $3000 account to pay it in full. In many cases there are various filings that have been published in public repositories to ensure that lenders collateral does not get up and walk away. For this reason lenders have been hesitant to negotiate that debt, however they are more and more becoming aware that it is better to negotiate a fair and equitable payoff of debt. Most assets that were financed by commercial debt firms have substantially devalued due to a decline in the local marketplaces and construction and retail operations. We heard of one case where a contractor held a little over $4 million in tractors that abound in the used tractor marketplace (and not selling) and only held a value of $1.2 million. The lender settled for $1.2 million and took their lumps rather than going through the repossession process and holding on to property that could not be disposed of anyway.

Tax Lien Settlement Services: now that the businesses from all industries are closing, they are leaving behind a huge volume of unpaid payroll and business taxes. People do not realize it but there will come a time and place where the IRS and local state authorities catch up to them for the trust fund portion of the taxes. In these cases, there will be significant representation issues for both the government and the individual being pursued. These types of services need to be conducted by licensed individuals in many cases however; the marketing of these services can generally be conducted by unlicensed entities. The bad news is that people that are going through mortgage modifications, short sales and certain debt reduction processes are going to have a rude awakening in a few years when the government eventually catches up to the lost revenue. Let’s face it, the government at the local and national level spent too much money on too many things and the only place they can catch up is to do things such as pursuing the citizens (in other words, taxpayers). It is my prediction that this will be a huge marketplace to get these issues sorted out over the next 10 to 15 years.

I’ve given you some ideas of things that I’m hearing in the marketplace and I would love to hear from anybody else that would have ideas that can influence or better the lives of our fellow mortgage folks. I would be more than happy to pass them along.