interesting question

[grossreal]

hi all
here is an interesting question and its been on my mind for some time and I am going to be at the for front to make it happen and seeing people views here.
if a developer goes thru a broker for a construction loan and the developer gets into trouble because of lack of funding or the funding was assessed as in correct who is responsible currently the lender goes after the developer (and as we all know the funders are holding lots of sites)
now my view is that if the broker has not done his due diligences and has not informed the client as to the viability of a project or the funding table is not sufficent to a complete the site or the margin is not there fot he site to be completed that the broker should be held responsible to some degree.
and that the lender should be going back to the broker and asking the question why the broker has put the lender in this position and put more onous on the broker to check to make sure that the client can and will complete.
2. the lenders in general should have a system in place that when a client goes to a broker gives a establishment fees to a broker for a loan and that is supposed to be a refundable establishment fee if the loan does not go thru and that fee is not refunded with 30 days of the loan not going thru that the client informs the lender that that lender asks the broker why and if the answer is not satisfactory that that broker is removed from there panel.
for me the commercial lending enviroment is a mess and after talking to alot of lenders they see it as the same.
I can't believe the number of sites being held by lenders without lots of these types of questions being asked.
residential broking is one thing but commercial the commssion is very high and from what I see its nothing more then flipping at best and adding stuff to spread sheets or leaving items off to get the commission at worst.
with very little recoarse. and on top of that taking up front commission and just keeping them with a view to one day if ever returning them.
I have mention in another post that I am looking at setting up a commercial broking arm simply to stem the problem witha view that you pay nothing we evaluate the project and if the numbers work then do the deal if not tell the client why not and show them what the issues are and only taking to a lender projects that will get funding and only then getting a fee which does not go to the group but straight to the funder.
The lenders have a very silly rule that once a project has been presented once that it can't be presented again even if the broker has no clue of what he/she is doing.
I have said that they need a system to evaluate if the project is any good in the first place and not just a flipping process.
there is no regulatory body to check to compancy of a commercial broker and the start at around 2 mil and can go to 70mil if need be.
and in sydney I can name very few that are any good
I can name alot that arn't and as I said to these banks its up to them not a regulatory body to weed out the rubbish and get back on track.
for a lender to hold a site at land ( not even turned soil)with a lvr of 105% and a margin of 12% in enfield of all places, some one has not done there home work and the broker has walked away with his commission leaving the land owner with trying to get construction in this market is wrong and the bank holding the site should in my view not only be asking for the money back but should take some form of action against the broker.
just my view woundering others views

 

[MarkB]

now my view is that if the broker has not done his due diligences and has not informed the client as to the viability of a project or the funding table is not sufficent to a complete the site or the margin is not there fot he site to be completed that the broker should be held responsible to some degree.

Hi Lawrence

My view is that it is not the broker's job to assess the viability of of a loan application - that remains the domain of the dweebs that work in the lenders credit department.

A job of a broker is simply to represent the facts as they are presented to him/her.

It simply isn't reasonable to hold a broker responsible for factors beyond their control or for the actions of others.

M

ps. I was able to read until about the 10th line of your post before my eyes started to get sore. I think that might be a personal best for me.

 

[alexlee]

Using the recent residential property issues in the US as an illustration, there is a lot of finger pointing going on about whether brokers / banks should have been more diligent in assessing borrowers. Especially in cases where the borrower could not pay the revised (higher) rates.

Having said that, for a few years (not a short period of time) people DID use those loans that they had no chance of repaying to make profits because the market was so strong. Do the regulators have the right to say 'we won't let you take these risks because we think you'll get fried when the market comes back down'? The rich will most likely have special access to loans anyway. Regulation of those option ARMs, etc. would have meant lower income people missing out on owning property and making profits. While lower income people are disproportionately hurt by the subprime thing, the alternative would have been that they wouldn't get loans anyway.

I don't think it's the government's role to 'protect' us against risk taking. I should be free to take risks as I see fit, and take responsibility for them when it blows up, of course.

I mean, where does it end? Regulations preventing us from buying risky shares? Limit margin lending?
Alex

 

[grossreal]

hi alex
very true
but on the other side of the fence
as I mentioned to a lender today pre 2003 most lenders would lend to a dog and did
and that dog was an accountant or in the case of a couple on my desk high end individuals that have very good business but saw developing as a great way to make money
and now the lenders are holding the chickens as they have come home to land.
the lenders have closed there lending or tightened at best
as they are holding stock that had they been a bit more stringent would not have happened.
I am not asking for regulation as I don't see it works
what I am asking for is that the lenders start to do a bit of self regulation with the panels they already have.
admittedly you can't allow or regulate people against themselves but by the same token you can't have a situation as is the case now
where a broker takes a single page application fills in what ever they like submits to a lender.
gets knocked back and the clients chases for ever and a day for there establishment fee of min 5k and upwards of 35k with no come back and the banks/lenders say well thats market forces.
and if the paperwork is adjusted to get it thru lending well the broker gets the commission, he's off and running leaving the sh-t behind and the lenders says that its all the clients fault.
some of the paperwork past my desk would make your hair curl and these are deal that have gone thru credit.
when markets correct the iffy deals come out of the wood work.
and mark_b I would beg to differ on your point
if you are being paid to do a deal to get funding of any form
the best interest of your client must be the underlying requirement
your view of funding is exactly the view of a flipper but my view is very different.
the job of a broker or fund organiser is not to get the person to the line but to make sure that the client is capable of finishing the race because when they have finished the race they will come to you again.
it is no point in getting them running if they can't complete
you make very short term gain but loss of a client and for every client you gain it can cost up to 10 time that gain a new one
( its in one of my business books some where).
If I took your view that it doesn't matter if the deal can be completed or not as its up to the lender just give me the commission and I'm out of here thats not the idea of a broker.
a broker is simply the same as a manager, just that they represent different lenders not only one.
and I would just love to see the look on the face of a lender if you presented them with
I don't care nor am I interested in can my client complete
or his/her loan is viable, heres the facts they gave me
now give'em the loan and I'm out of here and heres my account for the commission
and by the way thanks for the trailer commission.

just a simple question why do you think they give you that on going trailer commission?

simple answer
because you are seen as the manager of the loan for them.
and in that regard you should make sure that the loan is viable and if you don't again in my view, you are doing a diservice to your client and should not have take the loan in the first place.
but thats my view
and by the way your view probably would be the view of alot of brokers but in normal business, (if you have been in business for a long time) you will see that the protection of the client or for that matter investor must be the paramount requirement.
and as for holding a broker responsible please tell me why not, not for things beyond there control
true
but putting deals together that are not and could not be in their clients best interest
why the hell not for me,hold them in some form responsible
I am not for litigation as in america but I not for no responsibilty no reply for anything I do either.
a broker is supposed to do a job and if that broker put a person into a no doc loan that that person has no chance of completing or a development site that has no case of finishing
then its a loss to me why not, if you can't do the job then don't take the job on.
and from my side of the fence there are alot of commercial brokers that can't do the job
not only that they have done a job that has damaged alot of sites and left alot of s-it hanging around.
and cost hell of alot of money.

 

[acer]

Hi Grossreal,

"because you are seen as the manager of the loan for them.
and in that regard you should make sure that the loan is viable"

You maybe missing the mark here as the brokers role is the go between for lender and borower. Not their job to assess commercial viability of a project. Yes they need to assess the borrower according to lenders requirement, which in no way imposes obligation for success or otherwise of a project.


"you will see that the protection of the client or for that matter investor must be the paramount requirement."

Are you serious here? Expecting broker to regulate lending? Imagine telling a major developer "look Im not recommending this, way too risky and people like you need to be protected from yourself". And what happens when 2yrs later the next developer makes $$$ on the same project? Very unhappy Jan.


Just my read on the matter but simply the big profits are made by those taking the risk (borrowers) which arent then split with the broker, so why should the broker be expoected to carry any of the losses?

 

[Rolf Latham]

Hiya Gross

You are a broker .....................

What a strange concept........

ta
rolf

 

[alexlee]

With all due respect, GR, I don't see you explaining loan details to people.
Alex

 

[Simon]

I cannot even picture him completing a form unaided.

 

[alexlee]

as I mentioned to a lender today pre 2003 most lenders would lend to a dog and did
and that dog was an accountant or in the case of a couple on my desk high end individuals that have very good business but saw developing as a great way to make money
and now the lenders are holding the chickens as they have come home to land.
the lenders have closed there lending or tightened at best
as they are holding stock that had they been a bit more stringent would not have happened.
what I am asking for is that the lenders start to do a bit of self regulation with the panels they already have.

So basically, you're telling lenders to lend prudently and leave business on the table. I seriously doubt that will happen. It ALWAYS go in cycles. People ALWAYS get too optimistic at the peak and too pessimistic at the bottom. Maybe as a group we humans are manic-depressive. You're expecting people to act rationally all the time, to think of the effect on the group, but that just isn't going to happen.

However, if we as individual investors are able to be rational, we make more profits, no?
Alex

 

[alexlee]

Forgive me if I'm wrong, but don't brokers have to tell a 'story' to the banks about the borrower? As much as I respect your knowledge, GR, I don't see you doing that effectively, at least not on paper.
Alex

 

[grossreal]

hi alex
not sure how to take your not seeing me explaining loan documents,
I would have thought that you would have read one and they are not hard to understand nor explain,
but alot of other document, franchise, jv,and tripartate loans and business structures, trust structures,margins, bank bill rates, risk margins, and leases docs are not as easy to explain
not sure how many people here have ever tried to explain and go thru those I know one franchisee here that would have gone thru his franchise doc and can tell you how complex that is, and that franhise was changed for the australian market and that all comes with in a commercial broker area.
I would think that not alot of people have read one never mind been involved in the formulation of one.
alex
I am saying that they lenders must go back to the deals on there books that have gone west and see if the information supplied was correct and if not sheet that home to the broker.
acer
you would not be telling a large developer if a project is viable or not as they have evaluation programme and there own market research,
but
nor should you just flip a deal as you are getting a very large commission compared to resi a 10mil deal and thats not large
3 storey walk up
very average
commission is between 100k to 200k and its fully negotiable
the one I am doing at the moment if I sent it out the commission is 340k
and for these types of deal no accountability at all.

as for another developer doing the same deal and make $$ in your post that just doesn't happen as its a numbers game.
if the margin is not in it for you its not in it for anyone else.

try telling your idea to a couple of lenders that are holding sites they have lent on that are 165 and 200% lvr
heres a few that would have loved the broker that did these to have gone on holiday or painted the door red so that the angel broker would have flown past them
try a purchase of $5,200,000 2003 for a 3 storey walk up 19 units purchased and construct approved borrower an accounting company( so no idiots in business) thats 273k each take the build at 255k thats 528k land and cost in dulwich hill/marrickville without gst or interest and the broker on that deal would have walked away with 100k min would love to meet him
the land today is worth 1.425mil
maybe this was one of those big developers
well he is becomming a very small developer and is fighting off a couple of banks.

or would the broker that did the deal in burwood 3 storey walk up 10 units with a end value of 750k for a 2 br unit
would he please stand up
held by bankwest at 1.8 mil with a max val of 1mil and the he has his property on the market as has run out of money fending off the banks.

or the broker that did the deal for 2 x 34 units sites at waitara with a end value 1.2 mil each for a 2br
where the max was 550k and suncorp lent 7.5 mil at a land cost of 220k with a true land val of 3.4mil
and even then a margin of 5% with the current sales in the area
love him to stand up his work earn't him 272k for his master piece.
I think the last offer on the sites was 2 mil each.

or the guy that did the loan for rockdale thats at 80% and run out of money because the cash flow chart had a couple of things missing to get the funding and the guy is selling at a 20% discount on list inc gst and no you wont be told where that site is and he is selling to stop an administrator.

or sans souci 4 sets of duplexs with a start margin of 5 % on cost
total build and land 5 mil
and the four groups involved have mortgaged there personal houses to keep afloat the broker on that one only walked away with 50k leaving behind a secretary,a hair dresser,a security guard and a bricklayer holding the can.
with each person having to come up with 1k amonth negatively geared and unable to sell as the loan is higher then the val.
not sure if these above would say they are in the high developer area.
all of the above should never have gone to lenders on the paperwork that they did.
you alex can today go to the mortgage group ( example no inference to draw to this company) sign up do a 6 months coarse, stick a sign up out side burwood shopping centre
with I will get you a loan
and you too could do just as good a job as the brokers that did the deals above
and you wouldn't even have to attend any of the lessens at the mortgage group or get the local paper and join another broker originator group.
go to any bank and ask have you got any 3 storey walk up sites for sale not a real estate a bank and you will get a list.
and sorry to say that when you say you have to tell a story to a bank well that is a very good example because all of the above sites were just that a story.
I will disregard simon comments as I don't use ignore button I give it the respect it deserves and thats 0.
rolf yes I am a broker but don't broker outside my own deals
I have seen what the market has become
as I am being asked to assist more and more to fix up these problems.
because there are alot of brokers out there that have not got a clue at what they are doing.
the issue for me because of the way that alot of commercial brokers have behaved the lenders are holding stock and have closed down on there lending criteria.
but on top of that brokers that take commission and just never give it back. and do nothing for it.
put on top
mortgage warehouses were brokers flip a loan with the barrest of information and then the warehouse basically wholesales the loans to a lender
and the lender throws out the deals that are not in an area that they want to lend in (and most of that paperwork would not get thru credit in the first place )and they just walk away with well we tried and thanks for the 5 or 10 k.
not a bad return sign out side burwood $10
training cost 0 as they don't charge to become a broker
5 of these deals a year at 10k=50k
100 of these deals a year thats your mil and flip as you go
not bad
two a week thats all thats needed.
and no regulation to stop you
just a disclaimer that the money is not refundable if you get the loan or not.
and if you should by fluke get one thru credit of a lender as you have used a fluid pen and dodgied the figures a bit
1 to 1.5% of the total loan is your little win fall.
and is one of the reasons that alot of developers now go direct and don't use brokers as was mentioned in another post.
I think the whole business is a mess and when you have a mess you have sharks
and there are some very big sharks swimming in the commercial broker especially in the construction funding area, with alot of people that ex real estate,ex teachers, even ex pizza delivery boys
with no control at all

 

[Rolf Latham]

Hiya Gross

So are you implying that there is broker fraud here ?

If yes, then get the authorities onto it.

If its broker incompetence, then only the funder is to blame ultimately.

If I personally lend money, I assess the risk..................

ta

rolf

 

[grossreal]

hi rolf
fraud maybe a bit of a strong call fudging to get a deal is more like it.
is it fraud to telll some one that they will get there money back because the deal did not go thru and then delay for two years and still not pay the money back is that fraud.
is it fraud to put a disclaimer of the end of a mandate that the mandate fees is not returned if the loan does or doesn't get approved.
is it fraud to miss items off spread sheet and if those items where on the spread sheet then the loan would not have gone thru.
yes it is ultimately the lender risk and thats what we see today.
and my slant is that if a lender has paid a large commission and these are large commissions then the lenders should be going back to their broker with a please explain.
and for people here interested in getting commercial loan's do not in any form pay a broker up front fees.
and they all want them

 

[Rolf Latham]

Hiya Gross

Nos thats a lot clearer.

Im not in the commercial sphere much, do a bit for existing clients but dont seek it out ............way too hard

I suspect the reason why some comm brokers want some upfront hurt money is that they dont want to spend eons on a deal, only to be shopped around 10 different brokers, and thence have minimal chance of making a living.

ta
rolf