INSIDE THE DEAL: Improving the Chances of Loan Approval

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By Keat Foong, Executive Editor Evansville, Ind.—Here is one way to increase the chance of loan approval: obtain a cross-defaulted and cross-collateralized loan. Walker & Dunlop originated a combined Fannie Mae DUS loan of $46 million for a portfolio consisting of three conventional multifamily properties in Evansville, Ind. and five student housing properties serving Indiana…

By Keat Foong, Executive Editor Evansville, Ind.—Here is one way to increase the chance of loan approval: obtain a cross-defaulted and cross-collateralized loan. Walker & Dunlop originated a combined Fannie Mae DUS loan of $46 million for a portfolio consisting of three conventional multifamily properties in Evansville, Ind. and five student housing properties serving Indiana University in Bloomington, Ind. The properties under the cross-defaulted and cross-collateralized loan are underwritten to the same standards. And if one of the properties should default, all of them default.  Applying for a cross-collateralized loan makes for an easier approvals process, says Will Baker, vice president at Walker & Dunlop. “It is easier to get approved,” he said. Walker & Dunlop had suggested to the borrower to obtain such a loan for the properties. Drawbacks to cross-collateralized loans include the fact that borrowers cannot sell off one property or substitute it for another, unless there is a release provision written into the agreement. A release provision, however, would incur higher interest rates, says Baker. In the case of this transaction, the borrower intends to keep the properties for a while, and get some cash out at this point, says Baker. The combined loan is assumable, says Baker. The combined 8 multifamily properties have 1,699 units. The largest individual loan is a $15.5 million mortgage. All the loans have been underwritten on a stand-alone basis.  Indiana falls within Fannie Mae’s pre-review market, which includes Florida, Atlanta and Phoenix. Fannie Mae’s credit department had to review the application. The pre-review normally takes three to five days, says Baker. Nevertheless, counting in favor of the application were the properties’ proximity to campus; the strength of the borrower, who has been in the market for more than 20 years; and the assets’ positive historical performance numbers, Baker notes.

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