Velocity Commercial Capital LLC, a Westlake Village, Calif., lender vying for a piece of the small-balance commercial mortgage market, is trying to entice residential brokers with a product familiar to them: 30-year fixed-rate loans.
Though such loans are a mainstay of home lending, they are just starting to gain ground in the commercial field, which is attracting residential brokers as home-loan volume slows.
“We think residential brokers are a natural fit for our end borrower,” Chris Farrar, Velocity’s president, said in an interview Wednesday. “This is a smart product for us from a risk perspective, because it’s a stable payment and there’s a lot of controversy in the market right now from adjustable-rate mortgages.”
But Velocity also is incorporating another feature of home mortgages that has generated controversy: stated incomes. It charges 8.625% for a 30-year loan for borrowers who do not document their personal income, or 8.25% for borrowers who do document it. Either way, the loan carries a prepayment penalty for the first five years.
If the property is sold, a clause in the loan document allows the buyer to assume the mortgage, Mr. Farrar said.
C-Bass LLC, a New York firm best known for buying “scratch-and-dent” home loans, is a minority owner of Velocity and has securitized a handful of its loan pools.
Velocity offers loans of $100,000 to $3 million to borrowers with FICO scores as low as 600. That sector is typically not served by midsize regional banks, because of the risk profile.
EverBank Financial Corp., a $4.2 billion-asset Jacksonville, Fla., thrift, expanded recently into the small-balance niche. William Sonsma, EverBank’s managing director for commercial lending, said several small-balance commercial lenders have been offering 30-year fixed-rate loans for more than a year, including Apartment Lending Group, which he sold to EverBank last month.
“The product is attractive on the surface but typically comes with a higher interest rate,” Mr. Sonsma said. “It’s like going to a nightclub and seeing a runway model — not everyone is going to be able to step up to the high maintenance, which is a high prepayment.”
Silver Hill Financial LLC, a unit of Bayview Financial LP in Miami, trains residential brokers to diversify into small-balance commercial lending.
The small-balance niche is highly fragmented, and some large players are moving in to securitize the loans.
“We’re doing the 30-year fixed to entice the brokers and small mom-and-pop investors that want a longer loan term, just to feel more secure,” said Velocity’s marketing director, Peter Wangerin.
