Some Thoughts on Commercial Mortgage Loans

Commercial mortgage loans usually include financing company property as a hotel, store, shop, factory or other building that is for income generation through the manufacture, sales or services.

In order to finance the operation of a company or its shareholders to obtain funding for various items such as construction, land, and other sub-structures that are part of the property where the business is located.

Commercial Mortgage loans may or may not include equipment that are included in the agreement and are already in the property. Commercial mortgage loans are different from residential mortgages in that the first ones can generally exceed $ 1000000 while the latter only reach around $ 200,000.

The main difference between commercial mortgage loans and residential mortgages is very simple. While one can typically be around the $200,000, the other can be higher than $1,000,000.

Commercial Mortgages loans are typically used by companies to make improvements to existing property, build new one or finance previously obtained liabilities. These kinds of financing are of course long term, and will give a business a period of 15 to 30 years to pay back depending on each individual company’s lines of operations.

When one company is new to the world of financing, commercial mortgage loans will require them to make first payments higher than normally in order to show the lender the ability to pay back.

Commercial lenders may be part of a bank or mortgage company, but the benefits are best for a company that specializes in commercial mortgage loans and not those who do both.

Even if they did, it is important that the commercial lender recognizes that these two services need to be provided separately and have two departments working on them instead of only one.

Business owners will trust a commercial lender that has great knowledge of the market trends. By doing that, commercial lenders will be motivating the business owners to feel comfortable with them and will make them more trustworthy.

Residential mortgages on the other hand, are contentiously being refinanced therefore it is important that the customer has a commercial officer loan that they can rely on in order to make decisions concerning their loans.

Importance of Security For Bank Loans

Banks lend money to the public, for various purposes, like purchase or construction of a home, for purchase of consumer goods like a TV, Music System, etc. Banks also finance businesses, both manufacturing and services. Apart from all these, they also extend personal loans to members of the public.

This service provided by Banks, namely, financing, or more commonly called lending, is fraught with several inherent risks. Loan defaults may occur for more than one reason, including reasons beyond the control of the borrowers, like for example, in case of floods or a Tsunami that may wipe out the assets of the borrower, apart from rendering him incapable of restarting his business immediately. The most serious risk to Banks in the lending process is the risk of non payment of the loan by the borrower. Imagine a situation where none of the borrowers of Banks repay the loans availed of by them! This could lead to a collapse of the Banking industry!

The current spate of Bank failures in America and elsewhere is, in good part, on account of borrower defaults. Whereas, in an ideal situation, every borrower repays the loan availed by him, from the Bank, in real life, this does not happen. Many a time, borrowers, both individuals and institutions, fail to keep up their repayment commitments, affecting the well being of the lending Bank. Sometimes, there are even genuine reasons why borrowers become defaulters.
 
This being the case, Banks invariably, have in place, norms and procedures that they follow before parting with money to a borrower. Banks examine and evaluate credit proposals, as to their viability and feasibility, both technically and financially, before taking a decision to grant a loan. Each loan is appraised individually to ascertain the soundness of the proposal and only then a decision to grant a loan is taken. Obtaining of security for loans is one of the safeguards that Banks exercise to secure their interests.Among the various precautions observed by the Banks to safeguard their interests in the lending process, is the obtention of security for the loan extended by them.
 
Definition of Security: Security, in relation to a loan extended by a Bank to a borrower, means, an asset, of any kind or description, having certain qualities, among them, monetary value, that can be possessed by the Bank, in the event of default, and applied toward repayment of the loan.
 
Having extended the loan to the borrower, Bank would naturally like to ensure that the loan is repaid with the interest thereon. That is, Bank would want to secure the loan. This is done by way of creating a charge against the asset financed by the Bank. The type of charge created depends on the nature of loan, and the security.
 
Basically, there are two types of securities available to Banks to secure a loan. They are Primary security and Collateral security.

Primary Security refers to the asset directly created out of Bank finance. For example, where a Bank finances the purchase of a home, the home is the primary security. In the same way, a car purchased with the help of a Bank loan, is the primary security for that loan. Bank creates a charge against this primary security, to secure its loan. This charge gives the Bank the legal authority to dispose off the asset, and apply the proceeds therefrom, to the loan amount in default.
 
Collateral Security refers to certain additional security obtained by the Bank to secure the loan.   For example, say, a Bank has financed the purchase of machinery by a Pharmaceutical manufacturing company. This machinery would be the primary security for this loan. In addition, the Bank may obtain collateral security in the form of the factory building owned by the company, as additional security. This will guard Bank’s  interests in the event of the primary security not having sufficient value to liquidate the loan.   Sometimes, on account of adverse market conditions, the value of the primary security gets eroded, exposing the Bank to a higher risk than it had originally bargained for.

 
Additionally, loans can also be secured with the help of personal security of the borrower. Obtaining personal security of the borrower enables the Bank to proceed against the borrower and his personal estate, to recover the loan.
 
Once a Bank secures its loans with proper security, the possibility of default is reduced, and even in case of default, the amount of loss it is likely to suffer is lesser than otherwise.

Mortgage Broker Bond – All About Countrywide Finance Corporation

There comes a point in time when a situation would present itself that you would need to get additional financial aid through the form of a mortgage bond. Getting a mortgage bond with a reputable company is extremely important since it you guarantee you that you would not only be able to get the financial assistance you need. A highly reputable financial institution would provide you flexible mortgage programs which you can choose from based on your needs and ability to pay back the amount you have taken out in the form of a mortgage.

Countrywide Finance Corporation

This is the largest home mortgage creditor in the United States. About 20% of the total home mortgages in the country, which account for about 3.5% of the Gross Domestic Product of the United States, have been attributed to this firm. In July 2008, Nationwide Finance Corporation was acquired by the Bank of America.

As a finance and investment firm, it offers a number of different products and services. Some of these include Mortgage Banking services, loans, mortgage bond acquisition and mortgage processing. Apart from the United States, they also serve clients in the United Kingdom and Japan.

About Nationwide Home Mortgage Bonds

Countrywide Finance Corporation trades in the capital markets, which are institutions that provide long-term funding and financing. As such, the source of the funds of this group comes in the form of equity and bonds. State Home Mortgage Bonds which are offered by the company is responsible in order for home loans and mortgages for commercial purposes are properly managed and funded. Currently, Home Mortgage Bonds account for 60% of the total revenues earned by Nationwide Finance Corporation.

This Home Mortgage Bonds are, as of the moment, only traded with other financial institutions such as banks, insurance firms, hedge funds, investment companies and the like. It does offer a number of different commercial mortgage bonds to individual and private investors, many of which are owners of commercial properties.

Countrywide Asset Management Corporation

Home loan processing as well as other types of loans, are handled by its subsidiary company, Nationwide Asset Management Corp. Many of the loans that are handled by Asset Management Corp. are delinquent home loans which they intend to start up their home loan services. These delinquent loans were passed on to Countrywide Finance Corp through the passing of various rulings done by the Federal Housing Administration and the Veterans Administration.

Securitized Loans

One of the products offered by this group is securitized loans. Securitized loan, in reality, are delinquent loans which have been issued under the rulings of certain government agencies such as the Federal Housing Authority and the Veterans Administration. These loans are often securitized by converting these loans into mortgage bonds. In the case of Countrywide Finance Corporation, its subsidiary, Nationwide Asset Management Corp intends to securitize the delinquent loans it intends to use to start up their home loan services by converting them into Home Mortgage Bonds. Once this happens, the delinquent loans can now be traded in the secondary sector of the capital markets.