SBA Loans
This is a list of U.S. Small Business Administration-backed loans approved during the week ended Friday by the SBA Oklahoma City office. The list includes the name of the company or individual, address, amount of the loan and the lender.
Broncho Quik Stop, 707 E. Hwy. 152, Mustang, $200,000, BancFirst.
Livestock Nutrition Center LLC, 4806 Moose Circle, Guthrie, $365,000, Bank of Okahoma NA.
Thunderbird Chemical Co., 130 S. Main St., Muskogee, $80,000, SpiritBank NA.
SBA loans
This is a list of U.S. Small Business Administration-backed loans approved during the week ended Dec. 20 by the SBA Oklahoma City office. The list includes the name of the company or individual, address, amount of the loan and the lender.
Tulsa Speedway Inc., 2106 E. Randolph, Enid, $250,000, Bank of Oklahoma NA.
Aerostar International Inc., 415 W. First St., Claremore, $200,000, Bank of Oklahoma NA.
Quizno’s, Route 3, Box 15, Kingfisher, $150,000, Home National Bank.
Servpro of Chickasha, 24358 Portland Ave., Blanchard, $105,000, McClain Bank NA.
LOAN CRAZY
FIRST time buyers are facing a lifetime of debt as companies offer ever bigger mortgage deals.
An investigation found one financial consultant brokering massive loans of up to FIVE times a person’s salary for young home buyers to get on to the property ladder.
Loan loss provision rate and loan losses
Banks’ loan losses are ultimately determined by two factors: the size of the loans that borrowers cannot service and the portion of these loans that is lost. The latter depends on banks’ collateral and borrowers’ future debt-servicing capability.
Banks’ problem loans comprise defaulted and doubtful loans. Defaulted loans are loans that have not been serviced within 90 days after the due date. Doubtful loans are loans where no formal default has occurred, but where the banks expect to incur losses. The number of problem loans fell after the banking crisis at the beginning of the 1990s, increased somewhat again in 2002 and was slightly reduced in 2003 (see Chart 1). Specified loan loss provisions are calculated losses on problem loans. In recent years, total calculated losses have accounted for approximately 30 per cent of problem loans, compared with just below 50 per cent in 1993.1
Loan loss provisions are on average higher for enterprises than for households. The loan loss provision rate for enterprises was 34 per cent at end-2003, compared with about 90 per cent in 1992 during the banking crisis. For the household sector, the loan loss provision rate has remained relatively stable at around 20 per cent.
For enterprises in particular, it is reasonable to expect a positive relationship between the extent of problem loans and banks’ loan loss provision rate. Real estate is often used as loan collateral. Loan default figures are usually high during a downturn. Prices for commercial and residential property will then often fall, resulting in a decline in the value of banks’ collateral.
While loan loss provisions express what banks at any given time expect to lose on problem loans, losses in banks’ profit and loss accounts (recorded losses) express the amount to be charged against the accounts for the period. Recorded losses are mainly determined by loan loss provisions for new problem loans and corrections of loss estimates for previous periods. While losses on new problem loans will always have a positive value, reassessments of previous loss estimates can be both positive and negative. A downward revision of loss estimates on some loans will be regarded in the accounts as income.
Recorded losses for the DnB Group for the years 1989-2003 show the effects of changes in loss estimates (see Chart 2). Losses were highest in the banking crisis years, reaching a peak in 1991, while losses on new problem loans were highest in 1992. Reassessment of loss estimates contributed to increasing recorded losses in the years 1990-1993, but contributed to reducing loan losses in the subsequent period.
Bank losses will increase most sharply if new problem loans and the loan loss provision rate both increase. There is currently a relatively low level of problem loans and the effect on total bank losses of an increase in the loan loss provision rate for these loans will therefore be limited.
1 Unspecified loss provisions were first introduced in the accounting year 1992. Figures for 1992 may be influenced by bank practice in connection with the introduction of the new rules. Practice probably varied more from one bank to another in the first half of the 1990s than today.
Copyright Norges Bank, Economic Intelligence Dept. Jun 2004
Provided by ProQuest Information and Learning Company. All rights Reserved
Loan Education
Early education and clear explanations of student loan terms may help decrease delinquent debt
While a college education may be priceless, for many families it’s not exactly affordable. In fact, today the average cost to attend a public four-year college has risen to $6,185 a year, according to the College Board’s Trends in College Pricing 2007 report, and students can pay an average of $95 to $1,404 more than they did last year for tuition. Happily, there is a silver lining: More than $130 billion in financial aid is available to combat these costs.
As tuition and fees continue to increase, educating students about the costs and repayment terms of student loans is important. For Jenny Hebert, loans and collections supervisor for Western Washington University in Bellingham, Wash., in a perfect world financial literacy would start with the orientation process. Although students might not be ready to discuss the terms of the loans they’ll face upon graduation, Herbert said it’s important to make the information available.
“We put ourselves out there and try to communicate to students who we are on campus,” she said. “We make ourselves available from the beginning.”
Western Washington’s annual costs for 2007/08 are $16,407, which includes tuition, books, supplies, room and board, transportation, and miscellaneous costs. Hebert’s department collects on out-of-pocket tuition and Perkins loans, in addition to providing entrance and exit counseling for the loans.
When students obtain a federal loan, such as a Perkins loan, federal requirements mandate they have to complete an entrance interview before they begin school and an exit interview after they complete their education. The entrance and exit interviews typically provide an overview of repayment terms, required minimum payments and an explanation of their obligation to repay the loan regardless of whether or not they completed a degree program or were satisfied with their education.
Hebert noted that because students sign the master promissory note electronically, it can be easy to skim over the loan repayment terms, along with other vital information.
“Unless you capture their full attention and say, ‘This is really a loan that you have to pay back,’ they might not get that impression,” Hebert said. “Put your information out there for students so they understand.”
For the 2005 fiscal year, Western’s Federal Family Education Loan and Federal Direct Loan (FFEL/FDL) cohort default rate was 1 percent, while the most recent U.S. Department of Education numbers from the 2005 fiscal year for a four-year private school showed a FFEL/FDL cohort default rate of 2.3 percent. According to Hebert, the default status tends to be higher on the Perkins loans side than for other student receivables. As of Dec. 31, 2007, Western’s cohort default rate for Federal Perkins loans was 2.09 percent.
Sherman Shaw, supervisor of collection services at Washington University in St. Louis, Mo., said the university’s loan department sends out balance statements once a year so students can see how much they are borrowing. Students often default on their student loans because they don’t understand what debt they owe after they’re done with school.
He noted that Washington University’s default rate is less than 2 percent, and that since most students who graduate are well employed, the reason for missing a payment is usually because they didn’t see the bill or forgot about the loan.
Although student loans are ultimately the responsibility of the student, Hebert said in some instances students’ parents will fill out the exiting paperwork. The problem is that the students may not understand their repayment options, which can lead to late or missed payments.
Shaw agreed, noting that a small percentage of Washington University students let their parents fill out the paperwork, potentially missing out on important information.
“We’re trying to get students to participate in the process,” Shaw said. “The education process isn’t just about the education you get at the university, it’s education about your finances, too.”
Students attending Washington University, which could cost up to $46,132 a year for tuition and housing, can apply for a Perkins loan; an institutional loan, which assists international students; or a loan through the parent loan program, similar to the Federal Parent Loan Program. Shaw’s department collects on all three loans, and his collectors work with students who are experiencing difficulty making their payments.
Shaw added that university collections departments should maintain an open dialogue with students so they feel comfortable contacting their collectors if they don’t think they’ll be able to make one or more of their payments.
“There are enough options out there that if a student calls their collection representative, they can get help,” he said. “The biggest difficulty is getting them to make that call.”
Some of these options include requesting forbearance on the loans, which would grant the student up to 36 months before the next payment. Shaw recommends students use their forbearance in six- to 12-month increments.
Bedford Property Investors, Inc. Announces Mortgage Financing
LAFAYETTE, Calif.–(BUSINESS WIRE)–Jan. 3, 1997–Bedford Property Investors, Inc. (NYSE:BED) today announced that it has obtained $25 million of mortgage financing from Union Bank of California. The mortgage financing is secured by an office building in Bellevue, Wash., and seven industrial properties in California. The mortgage loans bear interest at 7.5% per annum and have a five year term.
“With the closing of this $25 million transaction, the Company completed $50 million of long-term financing in 1996,” stated Peter B. Bedford, Chairman of the Board of Bedford Property Investors. “The interest rates continue to be favorable and our 1996 mortgage financings enabled us to take advantage of some excellent acquisition opportunities.”
Bedford Property Investors is a self-administered equity real estate investment trust (REIT) with investments in suburban office buildings and industrial properties concentrated in the western United States. It is traded on the New York and Pacific Stock Exchanges under the symbol “BED.”
CONTACT: Bedford Property Investors, Inc.
Peter B. Bedford or Donald A. Lorenz, 510/283-8910
Deutsche Bank to Acquire Berkshire Mortgage Finance’s Mortgage Origination and Servicing Assets
NEW YORK & BOSTON — Deutsche Bank and Berkshire Mortgage Finance Limited Partnership (”Berkshire Mortgage”), a subsidiary of the Boston-based Berkshire Group (”Berkshire”) today announced they have signed a definitive agreement whereby Deutsche Bank will acquire substantially all of Berkshire Mortgage’s origination and servicing assets. The transaction is expected to close in the fourth quarter of 2004. Financial terms were not disclosed.
Berkshire Mortgage is one of the largest privately held commercial mortgage lenders in the U.S., specializing in financing for multifamily real estate. The firm is a leading originator of government-sponsored enterprise (GSE) and government-insured multifamily loans with $3.5 billion of origination volume in 2003. With a mortgage servicing portfolio in excess of $18 billion, Berkshire Mortgage has significant scale and is a top-tier servicer of multifamily mortgages in the U.S.
Upon closing, Berkshire Mortgage will become a part of Deutsche Bank’s global Real Estate Debt Markets group within the Bank’s Global Corporate Finance business. Deutsche Bank is a market leader in the commercial real estate debt market, with expertise in originating, financing, structuring, securitizing and trading commercial real estate debt. Berkshire Mortgage will advance Deutsche Bank’s existing capital market presence in all of these areas.
Berkshire is a diversified real estate and financial services firm founded in 1969 by brothers Douglas and George Krupp. Berkshire Mortgage was founded in 1987 and has headquarters in Boston, MA, and platform offices in Bethesda, MD, and Irvine, CA. The business will maintain its operational headquarters in Boston, as well as its regional facilities.
“Berkshire Mortgage Finance is a premier name in the multifamily housing sector, and this acquisition will give Deutsche Bank a leading position in an important and very attractive market,” said Jon Vaccaro, Global Head of Deutsche Bank’s Real Estate Debt Markets business. “Uniting these complementary businesses will further solidify Deutsche Bank’s position as a dominant player in the commercial mortgage markets.”
“Berkshire Mortgage has built an outstanding business, and we are very pleased to have them join our team,” said Tom Gahan, head of investment banking for Deutsche Bank in the Americas. “We are excited at this opportunity to further expand our successful Real Estate Debt Markets franchise, in line with our commitment to invest in high growth areas that are accretive to our earnings.”
Douglas Krupp, Chairman of The Berkshire Group said: “Our divesture of Berkshire Mortgage is consistent with our long-term strategy of creating new businesses, growing those business to be market leaders, and creating significant value for our equity holders. Our successful implementation of this strategy includes our formation, growth and sale of Harborside Healthcare, a leading provider of long-term care, and Berkshire Realty Company, Inc, a leading operator of multifamily properties. We expect to continue this strategy going forward within our core competencies. We are most pleased that this sale not only fulfills our economic goals, but provides Berkshire Mortgage and its employees with exciting opportunities to grow the business as part of Deutsche Bank.”
“We are proud to become part of the Deutsche Bank real estate team and excited by the prospect for accelerated growth as part of the Bank’s platform,” said Peter Donovan, CEO of Berkshire Mortgage Finance. “By combining Berkshire’s national origination and underwriting capabilities with Deutsche Bank’s global capital markets expertise, we are well-positioned to be the preferred source of efficient and creative financing solutions to the multifamily real estate market.”
About Deutsche Bank
With roughly Euro 849 billion in assets and approximately 65,700 employees, Deutsche Bank (NYSE:DB) offers unparalleled financial services in 74 countries throughout the world. Deutsche Bank competes to be the leading global provider of financial solutions for demanding clients creating exceptional value for its shareholders and people.
Deutsche Bank ranks among the global leaders in corporate banking and securities, transaction banking, asset management, and private wealth management, and has a significant private & business banking franchise in Germany and other selected countries in Continental Europe.
Deutsche Bank Securities Inc. is the investment banking and securities arm of Deutsche Bank AG in the United States. http://www.db.com
About The Berkshire Group
The Berkshire Group was founded in 1969 by brothers Douglas and George Krupp. Their portfolio of companies have included Berkshire Realty Company, Inc. (New York Stock Exchange listed 1991-1999), Harborside Healthcare Corporation (formed 1987, New York Stock Exchange listed 1996-1998), and Berkshire Mortgage Finance (formed in 1987).
Globalization of mortgage and finance industries predicted
Major realignments and refocusing are leading to a new globalization of the mortgage and finance industries, according to Michael Landau, president and CEO of Hampstead Financial Corp.
Addressing a seminar on “Loan Production and Strategic Alliances” at the 84th Annual Convention of the Mortgage Bankers Association of America in Manhattan, Landau predicted that the mortgage market is entering a new era in which mortgage professionals will provide a more complete array of financial products.
“Instead of ‘vanilla mortgages,’ mortgage professionals will accommodate borrowers seeking convenient, ‘one-stop shopping’ by offering much more efficiency and choice,” he said. “Instead of today’s traditional lenders, we will see newer, agile and more responsive mortgage companies taking their place.”
Emerging Mortgage Finance in Armenia
The broad availability of mortgage finance accelerates the pace at which households improve their housing conditions by permitting them to leverage their current income and savings. While there were a few long-term housing loans in the former Soviet Union, such loans were really little more than an element of centrally allocated credit.2 So, Armenia, like the other former Soviet republics, entered the transition period with no tradition of mortgage lending. The development of such lending has been hampered by the immaturity of the banking sector and macroeconomic setbacks.
Stability and impressive growth rates have been the key Armenian economic characteristics of recent years (see Table 1). Under these conditions the demand for housing has expanded and can be expected to continue to grow. The Central Bank of Armenia (CBA), the Ministry of Finance and Economy (MoFE), and the private banking sector all recognize the need for improved mortgage finance services to augment this demand. They see the commercial and development opportunities that development of mortgage lending entails. In recent months there has been an impressive degree of discussion and planning about how to undertake this improvement, as evidenced by the frequent articles in the news media on trends and development and the preparation of concept papers by the CBA and MoFE.
This is the appropriate time, therefore, for a systematic analysis of how private mortgage lending can develop in Armenia. This article summarizes the results of such an analysis. The analysis was prepared as the response of KfW (Kreditanstalt fuer Wiederaufbau) to a request from the Government of Armenia to develop the concept for mortgage market development, building on the work already done by Armenian experts.
To set the stage for the discussion of the development of mortgage market, the balance of this introduction outlines the general economic and housing situation in Armenia in which mortgage market development will occur.
Macro-economic Environment
Armenia’s early transition was exceptionally difficult. Its economy was battered by three separate factors. First, the country was still trying to recover from its severe 1988 earthquake. When the Soviet Union dissolved in 1991, assistance from the USSR came to an abrupt halt and resources that could be spared had to be allocated to this disaster zone. Second, the NagornoKarabak conflict drained resources from the private economy to the battlefield and severely isolated Armenia economically. Third, Armenia like other former Soviet republics began the “shock therapy” transition to the market economy. The impact of this combination was devastating, as shown in Table 1.
From the year 2000, the economy has steadily improved and has grown at very respectable rates for the past three years. Reflecting the huge underutilized capacity in the country, inflation has remained lowto-moderate despite the strong economic growth. (The spike in 2003 is attributed to a supply-induced increase in the price of bread.) There is a general sense that growth has been concentrated in Yerevan. Some observers think that increased levels of international aid will result in realized growth in the next years over the levels projected in the table.
Still, household incomes remain at low levels. In 2002, per capita Gross National Income (GNI) was $790 according to the World Bank.3 On the other hand, poverty rates were very high: 49 percent of households lived in poverty and 17 percent in extreme poverty.4
With respect to the financial system, a low degree of monetary depth and intermediation activity are common among the so-called CIS-7 countries, the poorest of the successor states to the Soviet Union that include Armenia (Table 2). The CIS-7, as a group, compares poorly even with the countries of Southeastern Europe, not to mention Central and Eastern Europe. Low intermediation is associated with higher interest rates and bank spreads.5
Further data, specifically for Armenia and selected Eastern European transition economies, Russia, and two western European countries, are presented in Table 3 for 2002. These figures illustrate the challenges remaining for Armenia’s financial markets to become deeper and more efficient. The magnitude of Armenia’s interest rate spread and risk premium on lending figures are particularly noteworthy. At the end of 2003, the CBA reported spreads on AMD and dollar deposits and loans of 17.8 and 14.9 percentage points, respectively.10
Improving financial depth is important beyond the housing sector because of its clear relationship with sustained economic development. At the same time it is important to note the positive role that development of mortgage lending can play in increasing financial debt.
After a period of instability beginning with the transition, the commercial banking sector has gained its footing. Some further consolidation among the 20 existing banks is anticipated as banks must meet higher capital requirements in July 2005.
Berkshire Mortgage Finance
Freddie Mac announced that its Negotiated Transactions unit has closed a $62.8 million multifamily Gold PC Swap with Berkshire Mortgage Finance. The transaction involved the exchange of four fixed-rate mortgages originated by Berkshire for Equity Residential Properties Trust (EQR), a Chicago-based publicly traded real estate investment trust. The mortgages finance four properties, providing nearly 2,000 housing units in the state of Maryland.
“This transaction exemplifies the breadth of our securitization business,” said H.L. Van Varick, vice president of Negotiated Transactions in Freddie Mac’s Multifamily Division. “In a competitive market, our attention to service and creative structuring are what set us apart.”
“This was a fairly complex refinancing because these properties had been part of a large acquisition, invoking a considerable amount of operating partnership units. As a result, EQR had some very specific structuring needs that Van Varick and his team at Freddie Mac were able to address with a great deal of creativity and flexibility,” said David Neithercut, EQR’s executive vice president and CFO.
“We were very pleased with Freddie Mac’s response time and their ability to find a way to make this complicated deal work for everyone,” said Kyle Draeger, assistant vice president at Berkshire.
Since the introduction of the Freddie Mac Program Plus network of multifamily loan originators and servicers in 1993, Freddie Mac has provided financing for nearly 5,000 multi-family properties totaling more than $17 billion.