How they are determined and how to get them

Commercial loan (mortgage) rates are really driven by factors that come up from within the secondary capital markets. Commercial Lending Capital publishes rate sheets to previously registered and approved brokers only, as the nature of how to determine these rates is complex and requires training.

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Fact: The Wall Street Journal reports that in the worst-case scenario, federal regulators examining the 19 largest U.S. banks are projecting losses of up to 12% on commercial real-estate loans over two years. Guess what happens when banks need more capital? They raise the price for the capital that they do have. Guess what happens when banks have a higher than expected default rate AND need more capital? They raise the rates (pricing) and they tighten the credit standards. Guess what happens when banks are expected to fail? They quit making loans and rate is once becomes immaterial. It is vital that commercial mortgage originators understand the standards by which commercial mortgage rates are applied to a particular transaction.

Back to the first paragraph of this article whereby we indicated we only provide commercial rate sheets to approved brokers. The purpose behind this strategy is that we are disseminating correct information to borrowers. Let me give you the two examples below:

Assuming the same credit profile, borrower two would likely not be approved in this marketplace or the terms of the loan would be much more costly. No lender is anxious to allow borrowers to remove equity from a property, as that tends to be a high risk, high default transaction. Now along comes our well intentioned commercial loan broker with a commercial rate sheet in hand that may not see the difference between these two transactions. The borrower would be quoted incorrectly and expectations would be set incorrectly. The well trained commercial loan Broker will be incentivized to obtain training to correctly determine the correct commercial rate quote.

Register for our free commercial lending training (Certified Referral Partner) here and sign up to receive commercial rates and program updates via email.

Commercial Rate Index: A few years back there was a lot of discussion about which index was used to compute the final rate that the borrower will pay for a commercial loan transaction. Commercial mortgage brokers and commercial loan officers would telephone our offices (and those of our competitors) with open discussion and debate about what index they thought should be used. When the loan finally sold in the secondary market the index that the loan finally ended up with was likely going to change. The index at the beginning of the transaction is like a facade at Disneyland Park; there is an entire netherworld behind the scenes. Today the business is much simpler. You either have the credit file and scenario required or you don't and thus the rate is a byproduct of the transaction.

Our free commercial loan training system focuses on assembling the transaction and understanding the scenario before rates, expenses and fees are never determined or discussed with the potential broker or borrower. The originator that attempts to start the conversation by determining or discussing commercial interest rates is going to lose every time.

Register for our free Certified Referral Partner Program here and sign up to receive loan program updates or commercial loan rates via email.

The moral to this story is this: money is tight, the capital markets are maximizing their return on investment, values are down in most areas, and dissemination of correct information to borrowers is at an all-time low. Commercial Lending Capital is helping to bridge this gap by innovative training programs and the limitation of sensitive information dissemination to commercial loan brokers that are trained to properly use it.