Chapter 6The Financing Environment

Fin. Sys. For Comm. Prop. Finance• Financial Intermediation is the Goal

• Default Risk - likelihood that borrow can not meet mtg. obligations

• Role of Financial Innovations• Mortgage Backed Securities (RTC, CMBS)

• Typical Capital Structure• Loan to Value Ratios (75% avg. today)

Chapter 6The Financing Environment

Fin. Sys. For Comm. Prop. Finance• How has mortgage term varied over the years

• Under increasing inflation (Borrowers - long/ Lenders - short)

• The Relationship between Mortgage Finance and the Macroeconomy

• Capital Structure• Vacancy Rates• Delinquency Rates

Chapter 6The Financing Environment

The Mortgage Lending Process• Application Stage

• Contents of the Application Package• Descriptions of Property and financing

• Financial Statements of Borrower

• Pro-Forma Statements

• Appraisal & Phase 1 Analysis

• Underwriting/Analysis Stage• Analysis of the property (Review)

• Analysis of the Borrower (Subjective)

Chapter 6The Financing Environment

The Mortgage Lending Process• Commitment Stage

• Common Sections• Loan Commitment (letter)

• Negative Covenants (Priority)• Financial Covenants (Performance)

• Closing Stage• Pre-closing (documents prepared)• Closing (meet to sign)• Post Closing (tracking and recording)

Chapter 6The Financing Environment

New Developments in Financing Envir.• Commercial Mortgage Backed Securities• Securitization of Equity Capital (REITs)• Environmental Regulation (Liability &

Superfund)