“A Rolling Loan Gathers No Loss”

Although the title to this entry was taken from someone else, and is the mantra of most lenders in today’s market, I just heard a story which indicates that lack of thought continues to persevere among some lenders, and inaction and paralysis are still the number one reaction to a situation.

A borrower owed a lender more than $750,000 on an interest only loan. The loan was secured by two residential properties – one being the borrower’s primary residence. The present loan to value was more that 100%. The lender was portfolioing this loan.

The interest rate was above market and the borrower wanted to reduce the loan balance by $150,000, obtain a reduction in the interest rate to a market rate, and extend the term of the interest only period for five years.

This is considered a no brainer request for any lender. The curtailment of $150,000 brings the loan to value ratio to less than 100%, enhancing the lender’s collateral position. Reducing the interest to a market rate will continue to allow the lender to profit. Extending the loan for five years provides the borrower with time to figure out a longer term strategy – i.e., refinance with a conventional loan, sell the property, etc.

Although the borrower called the lender on a number of occasions and made the above referenced restructure request, the lender has yet to provide the borrower with a decision on this issue. Although I hear similar situations daily about lender paralysis, this one was too ridiculous to not write about it. Not only has the lender not communicated with the borrower, but their lack of communication is costing them the opportunity to restructure an “iffy” situation and make it better.

In these trying economic times, all businesses should strive to provide exemplary customer service. Even if the lender did not want to restructure the loan, at least have the decency to communicate with its own customer.


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