Production and Underwriting Best Practice Tips from Program Plus Seller/Servicer CBRE Capital Markets
December 9, 2011
As a panel facilitator at Freddie Mac's recent Leadership Conference, CBRE's Steve Heffner offered his insights on how Seller/Servicers can work most effectively with us in support of our mutual business goals. We've asked him to expand on his insights with you in this special guest narrative.
In today's market, borrowers are looking for us to facilitate their deal evaluation with Freddie Mac and provide results as quickly as possible. As Seller/Servicers, there are many steps we can take that speed the time that it takes to Freddie Mac to complete the underwriting process.
Ask yourself if the deal is at the right stage to get a quote
The first step is to determine the right point in the deal's progress at which to request a quote from Freddie Mac. This requires judgment on our part to assess when the deal has progressed sufficiently. For an acquisition loan, submitting the deal too early in the process ties up some of the capacity of your Freddie Mac Producer. Waiting until there is greater likelihood of the property going under contract before requesting a formal loan quote helps to maximize efficiency and reduce quote times. An experienced Seller/Servicer should be able to provide a very close estimate of Freddie Mac terms and conditions to their client without submitting the deal for a formal quote.
Communicate with your Producer, prior to and during the deal evaluation process
Before you submit the Loan Submission Template (LST), make sure to communicate directly with your Producer so that you understand their current deal capacity, travel schedule or any other issues that might impact deal turn-around time for a quote.
Set realistic time expectations with borrowers for each underwriting stage
Everyone wants to provide the fastest possible results to their borrower for each phase of the underwriting process. However, it will best serve us to set realistic expectations that allow for some margin of error in case of the unknown. Find out what timeframe the borrower is expecting to ensure that it is reasonable, especially during these periods of high volume. While we're motivated to deliver results to our borrowers, clients will respond much better if we establish realistic expectations up front.
Understand how the borrower's needs impact the transaction
Borrowers have a range of priorities, including proceeds, spread, having an interest-only period or prepayment flexibility. Understand what components are their top priorities and convey them to Freddie Mac in order to help win the deal. Also understand that when we request multiple quote options from Freddie Mac it is very time consuming, so we need to understand what the client really wants and narrow their focus on one or two loan options.
Assess the competition and share the key drivers for Freddie Mac
Understand who else is competing for the deal and assess how the Capital Markets ExecutionSM requirements may impact the transaction. Work with your Producer to understand what Freddie Mac is ready to commit to for the deal. Share any deal factor and decision timelines that will impact the lender selection process.
Evaluate the deal information from an investor perspective
It helps our borrowers if we evaluate the deal as if we were the lender/investor. We'll streamline the borrower's experience by identifying the issues up front that present risk for their transaction and addressing them in the information submitted to Freddie Mac. Conduct a final review of the LST content prior to submission and ask yourself whether the data would raise any questions if you were the lender/investor in the deal.
- Have you included all of the information necessary to make an informed decision such as maps, aerials, photos, detailed description of the borrower, etc?
- Investigate any issues that you see and provide explanation and a rationale that supports your assumptions.
- Provide any additional supporting data needed proactively to help streamline the underwriting evaluation. For example, if you are underwriting expenses lower than T-12 +3%, make certain you have provided support for that change and included expense comps.
Given that Freddie Mac is now providing us with the ability to rate-lock with less information required up front, more is required of us as Seller/Servicers to make sure we understand the deal and have identified any potential underwriting issues. We need to do our best to ensure that the deal terms won't have to change after rate-lock because of issues that we could have identified upfront, as this will not only impact our reputation in the marketplace, but Freddie Mac's as well.
Freddie Mac has taken steps to increase capacity and the speed of the underwriting process by increasing its staffing, regional decision making authority, and early rate-lock process enhancements. Our goal is to add maximum value to the transaction by waiting to submit the loan to Freddie Mac when we know it is a real deal, providing Freddie Mac with everything it needs to make an informed credit decision, clearly communicating borrower hot buttons/decision factors, identifying potential underwriting issues, and setting realistic timing expectations with our clients. As Seller/Servicers, our role is just as critical in determining the speed of the process, the reliability of the quote and ultimately, the satisfaction of our borrowers with the results.
Steve Heffner is Senior Vice President with CBRE Capital Markets who has originated over $3 billion in real estate debt and equity transactions and has over 23 years of mortgage banking experience.