I am not attending the annual conference of the Mortgage Bankers Association, as I typically do at this time of year. I’m trying to keep track of every penny as the recession progresses, and I couldn’t justify the trip this year. But I am keeping up with the goings-on at the event through e-mail, Facebook and text messages, and will keep you posted.
One of the interesting issues raised over the weekend at the conference was the issue of workouts versus foreclosure. It was reported that the loss to the bank on a foreclosure without exhausting workouts was twice as much as when the bank pursued workout strategies. I need to get the backup for the statistics, but it is interesting on at least an anecdotal basis that it is in the bank’s financial interest to work with borrowers having trouble keeping current with their loans.
Of course, we have to make sure we define what constitutes a workout; based on recent discussions with bank regulators, it is clear that simply extending a loan won’t cut it. The regulators will be looking for a plan to minimize risk and for a new exit strategy for the loan, all in addition to some concessions by the borrowers and guarantors.
But it would appear that workouts work when the players figure out a way to restructure the debt in a manner that is fair and equitable to all parties.
I’ll pass on the details after my friends and lenders (and yes, they can be both) get back from the conference.
(Brian Andrews is a certified mortgage banker specializing in the financing of commercial real estate. His business is Andrews Commercial Mortgage and he can be reached at brian.andrews@acmla.com.)
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