Over the past 30 years, mortgage broker professionals have become a force in the residential housing market in Canada with the help of non-bank lenders such as First National. Now, First National is working hard to bring more brokers into the commercial mortgage market as a means of generating mutually beneficial growth while better serving the needs of commercial clients. Ed Kieser leads First National's Commercial Financing & Broker Services business where he has originated more than $1 billion in commercial financing in partnership with brokers. In this interview, Ed discusses the commercial lending process and how it works at First National.
Ed, in our last conversation, you talked about the benefit to brokers and borrowers of engaging early with a lender, even before an offer is made on the underlying property. Let's suppose they do this. What happens next in the process?
After our initial consultation, screening and the receipt of some preliminary information for the loan request, we issue a Letter of Interest to the broker and their client.
What's the purpose of a Letter of Interest and how long does it take to issue?
A First National Letter of Interest, which is sometimes called a loan proposal, outlines our potential terms and conditions for financing a loan request. It’s not a binding agreement, but it does indicate our interest in providing financing to the borrower and for the subject property per the terms and conditions outlined in the Letter. Once we receive standard and preliminary documentation from the broker on the borrower's behalf, it typically takes 48 hours, plus or minus, to issue a Letter of Interest. Depending on the loan request or asset class, this could take a bit longer, but in any event, the turnaround time is certainly ahead of lending-industry norms.
What happens with a Letter of Interest?
Assuming the broker and their client agrees, the borrower endorses it, provides the documentation required, and First National proceeds to obtain credit approval, or third-party approval in the case of CMHC-insured financings, in order to issue a final Mortgage Commitment.
What's the purpose of a Mortgage Commitment and how long does it typically take to obtain one?
A Mortgage Commitment is the final approval and binding contract that formally and legally outlines all the terms and conditions of the loan request. Obtaining a Mortgage Commitment can take 30 to 45 days on average, or longer depending on the complexity of the transaction and the volume of business being underwritten. This is why it’s so important to get the process underway early, and even before a property purchase offer is made.
Should a broker expect to be involved in all steps in this process?
It’s entirely up to them. We’re more than happy to work with mortgage brokers at every stage and aspect of the loan process and we always willing to share our knowledge along the way. However, if time and work load is a constraint, we can also work directly with the broker's client and involve the broker at a level that best suits their needs and schedule. Bottom line: our partners can choose exactly how and when they would like to work with their commercial client and with First National.
Do other financial institutions have a team like yours to support brokers wishing to do commercial deals?
Yes, they do, but in my view, no other lender dedicates itself to working as closely with mortgage brokers and clients in developing the right financing solutions and selection of the right product mix as First National. No other lender offers a broader product line for all major property types. And no other commercial lender has as broad an investor platform in place as First National.
What does this mean?
Unlike traditional balance sheet lenders who match their commercial mortgage funding activities with the deposits they take from the public, First National has always used an institutional funding model. That's to say we partner with other institutional investors to finance commercial mortgages and this makes us a very capable, all-season, all-weather lender with a broad investment and risk appetite that is second to none.
Ed, how has the commercial market performed this year?
I'll talk about that in our next installment.
If you have a question or a commercial deal to make with First National, you can reach Ed and his team at:
Ed Kieser, Assistant VP, Commercial Financing
Devin Sembaluk, Senior Analyst, Commercial Mortgages
Lisa Wright, Analyst, Commercial Mortgages