Frequently Asked Questions

Below is a list of questions that are commonly asked during the loan process. If you are unable to find what you are looking for, please call LCM at 888.474.2603.

Interest Rate Swaps and the "Swap Rate"

"Swap Rates" are the borrowing rate between financial institutions that have a credit rating of A/AA or higher. The swap rate is essentially the point at which the market is indifferent as to whether the rate is fixed or variable. Necessarily, each party to the swap has a desire to convert a fixed or variable position. Since an interest rate swap is a contractual arrangement between two counter-parties who agree to exchange interest payments on a defined principal amount for a fixed period of time, the principal amount is never exchanged and therefore is referred to as a "notional" principal amount. Swaps do not generate new funding; rather, they convert one interest rate basis to a different rate basis (e.g., from floating to fixed, or vice versa). The payments on a swap are a function of the notional principal amount, interest rates, and time.

The counterparties to the swap agree to exchange interest payments on specific dates, according to a predetermined formula. Exchanges typically cover periods ending on the payment date and reflect differences between the fixed rate and the variable rate at the beginning of the period. Fixed and variable payments are netted against each other to prevent redundant transfers of cash between counterparties; a net settlement is the only transfer of cash, made by the owing party on the payment date.

The current market swap rate can be found at http://www.thefinancials.com/vortex/GotoMarketReport.html?id=MarketReports.html

What is a Lockout Provision?

Lockout Provisions prohibit prepayment during a specified period. These provisions may include terms which provide a strong financial disincentive for borrowers to prepay, and exist in order to protect the yield expectations of investors.

What is Yield Maintenance?

Yield Maintenance is more directly concerned with the contemporary market situation. Yield Maintenance allows the borrower to prepay without harming the lender’s expectations of income from interest. The “penalty” for prepayment is the present value of the remaining payments, multiplied by the percentage difference between the interest rate on the loan and the current yield from treasury bills with the same maturity.

What is Defeasance?

Defeasance is a process in commercial lending, whereby borrowers replace the collateral in the original loan transaction with substitute collateral. U.S. Treasury Bills are the preferred form of replacement collateral.

A third-party specialist will determine the amount of replacement collateral necessary to ensure that the security holders with an interest in the original loan’s predictable repayment outlay are not left out in the cold. Of course, accountants and attorneys must be involved in the process to ensure that the defeasance agreement is adequate financially and legally valid and enforceable.

What does it cost to apply for a loan?

At LCM, pre-approval is free. If you decide to move forward, you will be required to deposit funds for third-party reports (e.g., appraisal, property inspection, legal, etc.).

What happens after I submit my loan application?

  • First, call LCM and discuss the project with an Account Executive to find out what we can do in general terms.
  • Second, you must Pre-Qualify the property and borrower(s). Please review the Pre-Qualification requirements in the Forms section of the LCM website.
  • Each program has its own unique Pre-Qualification package; make sure you send us the right and current package for the program you want for your borrower.
  • After we have reviewed the Pre-Qualification documents and find that the project is favorable, LCM will forward a Letter of Interest.
  • After the borrower(s) have signed the Letter of Interest and funds have been received to cover the 3rd-party reports, LCM will register the loan and begins processing.
  • The 3rd-party reports (appraisal, property inspections, including environmental data report, etc.) are ordered
  • The Commitment Letter and funding are the last steps. After conditions in the Commitment Letter have been cleared we then set up the closing. The whole process generally takes 45-60 days from pre-qualification to close, though sometimes timeframes are shortened when information is furnished quickly and when all information is completed without delay.

How long does it take to close my loan?

While there are numerous factors that affect the length of time to close a loan, if all required information is provided at the time of application most loans will close in 35 to 45 days (a rush fee may be paid on some requests to shorten closing times to approximately 30 days).

What do I do if I forget my password?

If you forget your password, click the Forgot Password? link on the Mortgage Broker Account Access Page and follow the instructions on the Reset Password Page ( http://www.lighthouse-commercial.com/password_reset_broker.php ). If you still have trouble after using the Reset Password page,  you can call LCM at 614-481-6073 or 800-471-4557 and we will be happy to assist you.

Is LCM limited to lending in specific states?

LCM lends in all 50 of the United States.

What is the difference between a recourse loan and a non recourse loan?

A recourse loan means the loan is guaranteed by the borrower personally. A non recourse loan means a third-party organization is formed for the property, such as an LLC or corporation. If the loan defaults for any reason, the mortgage holder would the take control of the LLC or corporation.

What is Net Operating Income (NOI)?

NOI is gross rent or income less expenses on the property.

What is ADS (Annual Debt Service)?

Annual Debt Service is the monthly principal and interest times 12 months (not including taxes and insurance in the ADS).

What is a CAP Rate?

CAP rate is a measurement of the rate of return on an investment. You calculate this by taking the NOI and dividing it by purchase price. The NOI divided by the CAP Rate = Value

Freqently Asked Questions about Commercial Loans and Multi-Family/Apartment Loans

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