Loan Modifications
Leveraging a technology solution that supports ‘market shift needs’ is essential.
The 2023 market shift leans into the rising need for loan modifications and the demand for technology in order to keep up — and reduce cost.
Over the past 6 months, customers, particularly banks and private lenders, using the now unavailable LIBOR Index have needed to shift to alternative indices such as SOFR. In addition, as the market continues to struggle and refinancing remains difficult to close, both situations have prompted the need for an expanded and more sophisticated standardized modification document platform. Working directly with these customers, GoDocs has enhanced the number of standard support modification alternatives allowing lenders to immediately produce lawyer quality modification documents, with all required recordable and non-recordable documentation.
Loan Modifications: Lenders Need to Keep Loans as Performing Assets
Speed accuracy and complexity are essential for banks that need to keep their loans as performing assets, notwithstanding the need to make midterm modifications and adjustments to essential terms and conditions.
One specific lender GoDocs works with has a portfolio of hundreds of LIBOR loans that demanded this solution. With our ModDocs® product, the lender was able to execute loan modifications, even those that were not generated within the GoDocs platform. This is an automated functionality that makes loan modifications easy for the customer, no matter the level of complexity.
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Click through to instantly view the Commercial Lender’s Guide: Shifting Focus in Today’s Market
Why should commercial lenders focus on loan modifications now?
Simply put, because lenders are more inclined to agree to the “short term” as of now. With 5- and 10-year loans made between 2013 and 2017 maturing over the next year or so, and with economic conditions the way they are, lenders are more inclined to agree to these short-term loan extensions rather than enter into longer term loans.
With this in mind, consider the following:
- For loans made in a lower rate environment, loan assumptions made in the current higher rate environment have lenders requiring interest rate re-sets as part of approving new loan assumptions.
- With rents flattening and demand for new housing starts plateauing, borrowers and lenders are seeking short-term relief in the form of loan modifications to help them avoid loan defaults and to keep their projects viable under economic conditions improve.
Property Foreclosure Avoidance — Get REO Off the Books
Understandably, lenders want to avoid taking properties back in foreclosure— after all, their business is in loans, not in property ownership. This is especially true at banks and credit unions. With regulators pressuring lenders to get any REO assets off the books within 12 months and with uncertainty in the markets ever-present, these financial institutions could face big losses if they foreclose now and attempt to sell within the next year. The downsides wouldn’t stop there, either, and could potentially include an FDIC downgrade of the lender and a bit more attention from the feds every three months than any institution wants.
Creative Loan Modifications Remedies
With this said, creative mod remedies are the way to go. They offer a more lucrative and secure approach to these properties. In this way, mods become a lender’s best friend by allowing a lender to bring a loan out of a current or pending default scenario so that:
- The loan will be shown on the lender’s books as a “performing” asset; and
- The lender will be able to pursue a non-judicial solution for a full loan payoff.
GoDocs — Mods at a Fraction of the Cost
No Matter the Origination
The GoDocs ModDocs® solution accelerates loan doc modification at a fraction of what attorneys charge. It works regardless of the attorney or system used to draft the original docs. With a perfected product, GoDocs offers an excellent alternative to risky in-house forms as lenders look to extend maturity dates, adjust rates, change loan types, transfer to different borrowers, or change underlying collateral like adding cash agreements. For any scenario, any complexity, GoDocs has the built-in functionality to execute.
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