All Forum Posts by: Doug Smith

...I would love to continue this spirited debate, but I actually have to get to my job. I'll pile back in another time. Good chat. 

 A lie of omission is still a lie. Concealment does have a material impact on pay back. It's actually closer than you might think...see my response just now to Mr. Cishker...

It does weaken our position in many ways when the old borrower is under the assumption, as they are in the majority of sub-to deals that I've seen, that they no longer have to make payments and the new person is going to do it. The concealment you are advocating usually also means that the original borrower is not getting statements...but I'll get to a specific instance in a moment. Sub-to is the reason for the Due on Sale clause being added to the docs in the first place. One big issue, however, is that these loans are usually securitized. Investors who purchase the bond-like mortgage backed securities are provided a prospectus in which the nature of the assets held in the portfolio must meet specific guidelines and specific vetting processes for ALL borrowers. Transferring title to a new entity without the permission of the lender/traunche does, indeed, erode the risk rating of the loan and, thus, the risk rating of the portfolio as a whole potentially causing a credit downgrade. If you recall prior to the last crash, people used the same question you just did..."what's the harm"...when it came to adding or maintaining assets in a traunche where specific underwriting procedures weren't followed for all borrowers. Once again, my concern is your advocation of concealment. A lie of omission is still a lie regardless of the legal loopholes you use to justify it. Lenders are harmed via that concealment. Original, unsavvy borrowers, more often than not think that they no longer are on the hook for the loan. One case in point was where I served as an expert witness in a foreclosure case in Hillsborough County, FL. A borrower thought they were no longer responsible for payments and Wells Fargo was only sending statements to the address of the property. Wells didn't know to send the statements to the original borrower because of the concealment you are advocating. The attorney that asked me to be the witness represented the original note holder. As statements were not going to him, because of the concealment, he had no idea that the "new borrower" as you put it had not been making payments. He only learned of the delinquency when the lis pendens was filed and he was served. In most cases, your "new borrower" does not have 2 of the "C's...capacity and character/credit of the original borrower, but they are the ones getting the statements and supposedly making the payments. The policies you advocate most certainly do harm us lenders. You've mentioned on several occassions that you are in the wrong forum. Why do you feel that way? Do you feel the people on BP can't grasp what you're trying to say? I think we do...some of us just might not agree with your position. 

I can easily answer your question. Our spreads as lenders are very, very thin. We can't afford to be wrong more than a little bit. We attempt to keep delinquency below 0.6%. Of the "three C's of credit", capacity is the most important. Meaning "does the borrower have the ability to pay the loan back". We look for primary and secondary exit strategies for the borrower before the tertiary exit strategy of liquidating the collateral. When this happens, it is usually goes through the court system. This, as you know, takes a great deal of time. The time value of money kicks in for us and we end up taking a bath on the deal. As you've demonstrated a few times in this thread, counsel for the borrower will do all they can to draw it out which costs us legal bills and we're on "non-accrual" meaning we're paying for the money we lent out but we are not getting interest back in. When we loan money, we are betting on the person we gave the money to. We are harmed when the property is transferred to a weaker borrower and when attorneys actively coach these new property owners...owners we never agreed to work with...to bend the law and draw it out as long as they can. You've said that I am "fearmongering and spreading misinformation" and you've implied that your obviously in the wrong forum because, either because you feel some of us can't follow your line of thinking or that we're not providing you with an echochamber of agreement. What specifically have I said that is incorrect? Perhaps we see things differently. I have an attorney friend that I have spirited discussions with all the time. He feels that if something is legal and he can get away with it, then its moral. I disagree. The positions of active concealment you advocate most certainly harm us lenders. 

 Perhaps this is the wrong forum. My low-level intellect can't seem to function on your level. You're right...it is a permissive act, however your active recommendation of concealment is what I am taking issue with. When we underwrite a loan, we are underwriting the borrower. Sub-to without our permission increases our risk. You're recommendation to conceal it from us is what I am taking issue with. 

 ...and I'm a lender that has made thousands of loans over 33 years and has run the special assets division for a bank. I realize you've done this a lot, but what your advising people to do is to conceal material facts from me and my lending bretheren to induce us to make or not make decisions in favor of your client that might not be qualfied thereby weakening our portfolios. I know you want to have a discussion and I think we're having it. You're knowingly advising people to circumvent my/our underwriting process(es)...the process we lenders use to protect our depositors or investors. You might think its a victimless crime, but it's not. I'll also question the fact that you've done 15,000 wraps with none defaulting. If delinquency rates run at about 0.6% (give or take depending upon the institution), then math tells us that about 90 of them should have defaulted. I'm sure you have good intentions, but when I see someone posting that they, as an attorney, are telling their clients to partake in concealment at my expense...I'm going to raise the issue. 

 Hi Alan, I've made it no secret that I have ethical issues with many of the sub-to tactics being used nowadays, but I have to ask about your statement "educate your seller not to contact the bank". You're knowingly advising a client to hide a covenant break to a financial institution which weakens the lender's risk rating on a deal. How is that any different than concealment in cases such as bankruptcy? What is to keep an unqualified applicant from being declined a loan at a bank only to have them "secretly assume" a mortgage loan from a previously qualified applicant? The Due on Sale Clause was born out of Sub-To deals 30-40 years ago where properties are transferred to non-approved, usually unqualified applicants. How can a financial institution manage risk if properties are secretly being transferred to unqualified applicants with attorneys actively coaching clients to circumvent and conceal covenant breaks. I realize your an attorney, but that smells like mortgage fraud. What specific statutes keep what your advising from being concealment at best and mortgage fraud at worst?

 He offered the course on 8-Track...well, I suspect he did. 

The development loans usually max out at $3M per unit and $20M of exposure including the horizontal. $5M is usually single-shot new construction. We don't see many of those. 

 I agree. I particularly giggle when I see all the posts where, under the pic, it sais "Posts 1: Votes: 0". There certainly do seem to be more and more click-bait commercial posts.