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   ARTICLE   |   From Scotsman Guide Residential Edition   |   January 2007

A New Niche for a New Year

Diversify your product offerings and income stream with small-balance-commercial loans

Like many other residential mortgage brokers, you may be wondering which alternative products can boost your income in the year ahead. It might be wise resolve to work smarter, not harder, in 2007 by diversifying with small-balance-commercial loans — aka, commercial loans of less than $5 million.


Here is a 30-day action plan for crossing over into small-balance-commercial lending:

  • Register for a seminar to learn about small-balance-commercial programs. Attend a sales-and-marketing workshop to help you find small-balance-commercial borrowers.
  • Align yourself with a lender that can do small-balance-commercial loans.
  • Get to know your account manager, and ask any questions you may have.
  • Advertise your expanded product offering. Include language about commercial loans on your voice-mail greeting, business cards, Web site and wherever else you promote your business.
  • Review your book of business for opportunities. The real estate owned section of closed loan files is an easy way to identify clients who own commercial property.
  • Make at least 30 phone calls (one each day). These can be to past and current clients, small-business-owners, entrepreneurs, area professionals, referral partners and other contacts.
  • Canvas at least one neighborhood to get the word out that you offer small-balance-commercial loans.
  • Set up at least five loan appointments.
  • Get at least two loans pre-approved.

The recent Boxwood Means/Scotsman Guide 2006 Small-Balance Commercial Mortgage Brokers Survey suggests that residential brokers considering a move to commercial can experience success as a dual or “hybrid” mortgage broker — working with commercial and residential loans.

Thousands of brokers already have found small-balance-commercial loans to be a profitable addition to their lineups, and the opportunities could continue to present themselves. Brokers who invest the time to educate themselves on the small-balance-commercial market and who take advantage of the programs available can boost business during the residential-market correction — and beyond.

Realizing the perks

The rewards in the small-balance market extend beyond higher commissions. According to independent research firm Boxwood Means, small-balance-commercial originations topped $134 billion in 2005. In addition, the commercial real estate market continues to experience growth, even as the residential market cools and contracts.

Further, the small-balance-commercial sector is attracting brokers and borrowers with new product lines. Some lenders have designed programs and training precisely for residential mortgage professionals to ease the transition into commercial.

In addition to the fall in refinances and home purchases in the residential market, brokers cite other reasons to explore small-balance-commercial loans, such as:

  • Less competition: Fewer brokers offer commercial loans, and the market is less crowded than residential.

  • Less interest-rate driven: Brokers stand less of a chance of losing deals by being undersold.

  • A new sustainable, profitable revenue stream: Brokers can earn more money per transaction, compared to residential loans.

Aside from the income, another positive about small-balance-commercial loans is that many of the borrowers who need financing are clients or contacts you already know. Target borrowers are often the same people brokers have been working with on the residential side — small-business-owners, entrepreneurs, professionals with their own practices, first-time investors and more.

If you don’t know them, someone in your circle of influence likely does.

Gaining knowledge

Smart brokers begin with education to overcome any intimidation they may have about offering commercial loans. Most residential professionals who have diversified with commercial loans find that with the right lender partner, small commercial transactions are much easier than they previously thought.

Lenders can offer a variety of education options designed to increase the comfort level of residential mortgage professionals who are working with commercial transactions. These can come in variety of formats, such as online modules, live seminars, Webcasts, conferences and special events. Learn the basics about the commercial market as well as specifics of the lender’s program. Choose the best fit for your schedule and preferred learning style.

Trade associations also offer beginning courses on commercial, with trade shows often featuring breakout sessions or additional sessions on commercial lending. Entire conferences even have emerged with the purpose of helping brokers become more adept at understanding and working with small-balance-commercial transactions.

Training and education is readily available; you need only take advantage of it.

Getting off the ground

Where to start? Consider an action plan from the education stage to pre-approvals (see sidebar).

Potential loan opportunities are not hard to find. Brokers new to commercial often find that multifamily is the best transition into commercial lending, simply because the real estate is most similar to residential and properties are just about anywhere. The more-advanced property-types likely will become easier in time.

Remember that small-balance-commercial loans are a logical extension of your product offerings and allow you to serve more borrowers. You can attract and keep more business by being a “dual” mortgage professional, while bringing value to referral partners who may not have a resource for their clients’ commercial real estate financing needs. In addition, you can reach out to new referral sources, such as Realtors, insurance agents and investment clubs.

The investment of your time will pay dividends for your business. And that’s one New Year’s resolution worth keeping.


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