Commercial Fills Subprime Void

Brokers have a new small balance commercial loan program that underwrites and closes loans ranging from $250,000 to $5 million, Principal Real Estate Investors recently announced. The new Dallas, Texas-based program, dubbed Principal Commercial Mortgage Edge, will originate, securitize and service small balance commercial real estate loans on a national basis and package them for securitization by Principal Commercial Funding II.

Among the property types the program will cover are office, industrial, multifamily, mixed use, self storage and manufactured housing. Loans will have flexible prepayment options and low fixed fees of $3,000 — compared to fixed fees of $10,000 to $20,000 other lenders typically charge, Principal reported.

“The market for small commercial and multifamily loans is close to $130 billion of annual origination volume,” said Jim Going, a director of the new unit, in the announcement.

YSP Commercial Loans is interested in working with small banks and mortgage brokers who have had experience in commercial lending, the company stated in an e-mail. The Virginia-based lender offers full doc and stated income commercial real estate loans from $250,000 to $15 million or more. Eligible brokers can earn up to 3 percent in yield spread premium, in addition to any other fees they charge, and get reimbursed appraisal costs up to $5,000 for all closed loans over $500,000, according to YSP’s Web site.

Its stated income program includes 5-year hybrid and 30-year fixed loans in amounts of up to $2 million for the purchase of owner occupied properties on a minimum score of 600 if the loan-to-value is 65 percent or less, as well as investor and multifamily loans of up to $3 million with a maximum 80 percent LTV. Full doc programs include small balance loan amounts of up to $8 million with initial fixed terms of 2, 5, 10 or 25 years and large balance loans of up to $15 million with initial fixed terms of 5, 7, or 10 years, YSP’s rate sheets indicated.

On the residential side of the mortgage market, Washington Mutual recently made more adjustments to its subprime loan menu and practices to “reflect the current difficult conditions — especially softening house prices,” and further minimize its exposure to subprime lending risks, according to a prepared remarks statement by WaMu Chief Executive Kerry Killinger.

The Seattle-based lender no longer offers subprime stated income loans nor adjustable-rate mortgages with initial fixed-rate terms of less than five years, eliminating 2/28 and 3/27 subprime ARMs. WaMu is also requiring tax and insurance escrow accounts with all new subprime mortgages and will also offer “industry leading disclosures and enhanced outreach efforts, including pre-closing contact by WaMu with the borrower, even when the borrower has been represented by a broker,” Killinger said.

The updates follow several other actions WaMu has made to reduce subprime exposure, including tightening underwriting, selling off the 2004 and 2005 subprime residuals, delaying plans to grow its subprime loan portfolio and consciously decreasing its subprime market share — second quarter subprime volume was down 70 percent from a year earlier, according to the prepared remarks.

“I want to emphasize that we remain committed to providing subprime loans to credit-worthy borrowers and that we believe these changes are the right thing to do for consumers to help them purchase and stay in their homes,” Killinger added. “It’s also prudent for our business.”

Countrywide and JP Morgan Chase also reportedly recently pulled subprime 2/28 hybrid ARMs from their loan menus.

Wells Fargo recently decided to exit subprime wholesale lending entirely because it believed “turmoil in the nonprime sector will result in financial returns for our nonprime wholesale channel that are not commensurate with the risks inherent in this business.”

Wells also appears to have temporarily ceased offering wholesale Alt-A loans, according to an Oregon rate sheet Tuesday.

“Pricing for Wells Fargo’s Wholesale Alt-A loans is being reevaluated day-to-day based on the demand for these products in the capital markets,” the rate sheet stated. “If a price is not noted, the loan will not be available for submission through our Institutional Lending channel on the day noted.”

Tuesday’s rate sheet did not have pricing or other information listed for its Alt-A products.

“The current demand for Alt-A products in the capital markets has been dampened,” according to an e-mail statement from a Wells Fargo home and consumer finance group spokesman — who noted that Alt-A pricing and availability on correspondent channel will also be determined on a day-to-day basis.