All items from Tough Times for Lenders

Over the last few weeks, I’ve commented on the new version of the OCC’s Commercial Real Estate Lending Handbook (I give it a gentlemen’s C); and I listed a few legal topics that deserve some guidance from the OCC.
“Guidance” could even merely be a list of important topics (ending with a warning that the list is NOT an all-inclusive list).
I expect legal issues to be identified and put on the “check the box” list by the OCC  - with the banks expect to check the box.
The "Blank" List
Unfortunately, instead of leading the class by at least listing legal issues associated with risks in commercial real estate lending, the OCC implicitly affirms those banks that under value and under utilize legal counsel.  (Let’s resist the temptation to comment on “why” this takes place.)
Fortunately, some banks are very good at identifying and monitoring legal issues. Several of them do this by a simple two step process:

Posted 38 weeks 1 day ago

In an earlier posting, I reviewed the OCC’s new Commercial Real Estate Lending handbook .  The purpose of the handbook is to give parenting – I mean guidance – on risks inherent in commercial real estate lending.  On legal topics, the handbook takes a mind-boggling approach: it swings from legal light, to “I know it when I see it,” to neglect.   Even with this inconsistency, my main complaint with the handbook is that, with a few exceptions, it misses the opportunity to give bank examiners and lenders guidance on important legal topics.  Based on this, I give the handbook a gentleman’s C.  (One reader followed up with me, and gave it a D.) 
As we all know, guidance often comes in a list (starting with your first ”star chart” on the kitchen refrigerator). The OCC lending handbook needs a “star chart” on important legal topics.

Posted 39 weeks 2 days ago

Last month, the Office of the Comptroller of the Currency published the Commercial Real Estate Lending handbook (August 2013).  The 128 page handbook gives guidance to bank examiners and bankers on risks inherent in commercial real estate (“CRE”) lending.  It replaces a 95 page version published in 1995 (and revised in 1998).
For this new school year and since commerical real estae lending is increasing in the “recovering” economy, I expected the OCC’s CRE lending handbook to grade-out with an “A+.”
Instead, it is a solid, gentleman’s “C.”

Make that a fraternity “C.”
Your Company is in this picture, too!

Posted 42 weeks 2 days ago

The July 2013 issue of the “Mortgage Banking” magazine focuses on the Consumer Financial Protection Bureau (or “CFPB”).  The coverline  is this: “CFPB – A Powerful New Overseer.”
Why my interest in this issue and coverline?
In the past, commercial lenders (and their lawyers) blissfully ignored anything involving consumer lending.  We quickly distanced ourselves from any meeting involving discussions of consumer loan documentation, compliance audits, data collection (and access), and the byzantine consumer lending regulations.
Residential lending was . . . but not really . . . but really . . . the “other side” of the lending family.
This is changing.
The residential obsession (on rules, lending policies, data collection and compliance inquiries) will radically change commercial lending.  It is more than a shadow on the wall.

In every industry meeting attended by me in the past year, anticipating the impact of the CFPB upon commercial lending is a top-tier topic.  Although not a formal agenda item, the discussions are not “if” this will occur – the discussions are “when?”

Posted 1 year 1 day ago

In many cities, urban growth now fills the farmland that once surrounded Navy and Air Force airfields.  Real estate development and finance near Navy and Air Force runways, however, requires special attention to a special set of restrictions called “AICUZ.”  These Department of Defense regulations severely restrict land located near military runways.  It is easy to overlook (or overfly) them in your review of real estate title, because they sometimes are implemented as zoning restrictions – and typically not expressly listed in the real estate title commitment or report.
Think of AICUZ as “stealth” or hidden restrictions on the development and use of real property.
As an Air Force brat, I literally lived under the sights and sounds of the F-86 Sabre, the F-101 Vodoo, the F-4 Phantom and the B-52 Stratofortress, with an occasional U-2.

Posted 1 year 2 weeks ago

In some parts of the country, a recovering local economy means the special asset (or problem loan) groups are reducing staff, as loan production groups come back to life.  Leaving the special asset group under-staffed could be a mistake if the staff is not able to properly complete basic foreclosure tasks.  One basic task is inspecting the property prior to taking title to the property (whether through foreclosure or a deed in lieu of foreclosure [FAQ series for information on deeds in lieu]).  Here’s a decision tree that might help you in deciding if an inspection “really” is needed, and a recent example that should energize you to look before you leap (into ownership of the collateral).

Decision tree: verify that your mortgage loan documents give you the right to enter the property, then

Posted 1 year 12 weeks ago

Most commercial real estate loan documents give meaning to the phrase “real estate is old as dirt.”  Why? Because just as dirt doesn’t change, commercial mortgage loan documents largely ignore the impact of technology on the physical attributes, use and operations of the property.

Take another look at your mortgage loan forms with these questions in mind, and ask yourself if the forms are “as old as dirt.”
My bet is that you won’t like the answers to the question.  (Yes, it’s even embarrassing.)
Do your mortgage loan documents cover:

Posted 1 year 14 weeks ago

As I look around the business landscape, much of the focus of company growth seems to center on leveraging the internet for greater connections (with their trading partners) and for more information (“big data”).
It’s a party.

My perspective is that lawyers soon will be invited to participate in the party.
But right now – despite all of the hype of lawyers as being “important business partner and advisers” –  lawyers are sitting out the dance.
Left behind at the curb.

Think about all of the investment and energy on this topic, yet so little of it is directed at using (what seems to now be a fundamental tool) to achieve greater connection and more information from company lawyers (whether in-house counsel or outside law firms).
In the last month, I”ve talked with two significant companies about ways to include lawyers in this fundamental topic.
Here is a screen shot of my “mindmap” overview.

Posted 1 year 15 weeks ago

In 2012, distressed commercial real estate . . . looked a lot like 2011 . . . and 2010 . . . and 2009.
Here are my observations on distressed commercial real estate in 2012:
Lessons from 2012:

Posted 1 year 26 weeks ago

The combination of 4 speaking engagements and working on 4 new (or revived) lending products buried me during the last several months.  Fortunately, I’ve navigated the course, and it is a new year.  It is time to take a look back at 2012, and step out with some comments on 2013.
New commercial real estate lending started to come back in 2012.  Finally.
Here are my observations on the distinctive attributes of this come back, and my prediction of what it will look like in 2013:
Lessons from 2012:

Posted 1 year 27 weeks ago