Banks Motivated to Sell Problem Mortgage Loans at Discount at Year-End

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“Banks are evidencing a willingness to sell their problem commercial real estate loans at a substantial discount before the end of this calendar year,” stated Kevin Levine, Executive Vice President of Strategic Asset Solutions/Peak Asset Solutions. “If those problem real estate loans stay on their books through December 31, banks will be required to create significant reserves against them,” he said. “This will impact their earnings reports for the fourth quarter and for 2011 as a whole. And it will lower their tangible capital ratios."

Banks have every motivation to sell problem mortgage loans and get them off their books before the year comes to a close.

“Banks are evidencing a willingness to sell their problem commercial real estate loans at a substantial discount before the end of this calendar year,” stated Kevin Levine, Executive Vice President of Strategic Asset Solutions/Peak Asset Solutions. “If those problem real estate loans stay on their books through December 31, banks will be required to create significant reserves against them,” he said. “This will impact their earnings reports for the fourth quarter and for 2011 as a whole. And it will lower their tangible capital ratios. So they have every motivation to sell those loans and get them off their books before the year comes to a close.”

Levine explained that despite the motivation for quick sales, banks will not enter into just any loan-sale transaction. “The bank must perceive that the value it will receive from the year-end loan sale will be equivalent to or greater than what it would receive upon foreclosure,” he said. “In making that calculation, the bank will consider the costs of foreclosure and the estimated time delay before the property can be resold.” Levine explained that the bank will want a “clean” sale, with no conditions and the prospective loan purchaser will have to provide a “proof of funds” evidencing that it has the cash to close the transaction in a matter of a few days.

Levine commented that if there is a strong guarantor, the bank will be much less willing to approve a note purchase resulting in a book loss. “However," he said, "if the guarantor is insolvent or otherwise financially weak, the bank will not be able to look to the guaranty as a source of recovery. If those are the circumstances, the bank may well conclude that it is best to cut its losses and dispose of the problem asset now.”

Strategic Asset Solutions/Peak Asset Solutions offers commercial loan modification and short sale services in California and throughout the country. The company’s personnel bring extensive commercial real estate expertise to each assignment, including market analysis, valuation, legal, and negotiation experience. Each borrower’s unique lending situation is fully analyzed, and the borrower is assisted in preparing current operating reports and projections. Then, Strategic Asset Solutions/Peak Asset Solutions drafts and submits to the lender a loan modification proposal. That proposal may include a principal reduction, interest rate reduction, and waiver of penalty charges. In those instances where a loan modification will not work to the mutual benefit of the borrower and lender, Strategic Asset Solutions/Peak Asset Solutions will attempt to broker a short sale of the commercial real estate at a significant discount from the loan balance, or will seek to negotiate a sale of the note to a third-party.

Strategic Asset Solutions/Peak Asset Solutions is one of the entities in the Peak Corporate Network headquartered in Woodland Hills, California. In addition to commercial loan modifications, the Peak Corporate Network entities offer mortgage lending, loan servicing, residential short sale services, 1031 exchange, trustee work, foreclosure services, real estate brokerage and escrow services. For more information, visit http://www.peakcorp.com

The Peak Corporate Network brand represents a group of related separate legal entities, each providing its unique set of real estate services.

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