INSIDE THE DEAL: Improving the Chances of Loan Approval

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.