The Credit Union Loan Closing Experience
Why would any lawyer conjure up the term "loan closing experience"?
It is a welcomed professional kumbaya moment following a loan closing when emails start flying with expressions of appreciation from borrower to title counsel, loan officer, loan underwriter and outside counsel.
It comes less with credit union loans than with loans closed for other lenders, especially commercial mortgage-based securities, life insurance companies and Fannie Mae or Freddie Mac multifamily. Ironically, credit unions offer the best loans at the best rates. But closing loans is not just about rates. It is also about the complete closing experience.
Credit unions are focused on member experiences and enriching member relationships. Most commercial real estate borrowers are not credit union members when walking through the credit union door for the first time for a loan.
While borrowers want loans and credit unions want to lend money, closing loans is no different than any consumer experience. Borrowers are looking for a positive experience. They want to be treated like a Nordstrom shopper.
Among the top 10 reasons for the loan closing experience for borrowers of credit union loans not always being a positive experience is the following:
1. Time to close was far beyond that projected by lender.
2. Best lending practices not employed.
3. Credit union reliance and/or delegating to consultants in absence of in-house expertise sometimes resulting in inefficiencies and other issues not common to a borrower's experience with other lenders.
4. Poor communications.
5. Process for negotiation of loan documents not smooth (especially when working with industry templates which are in too many instances generic, one-size fits all and ironically may be deficient in best protecting credit unions interests).
6. Not managing borrower expectations.
7. Not delivering at closing what was promised at start.
8. Lack of trained professionals at every step of the closing process.
9. Involving legal counsel in on an ad hoc basis late in the closing process, resulting in further delays.
10. Lack of institutional lending commercial real estate lending culture.
Underlying all these issues may be that in the credit union industry too often commercial real estate lending is an appendage to member business lending in general, or staffed by those involved in residential lending being recruited to do commercial real estate loan closings.
Credit union commercial real estate lending must be a credit union-developed specialty.
Next Page: Meeting Demands
Borrowers needing commercial real estate loans can be sophisticated, demanding and, either wittingly or unwittingly, may not provide complete answers or provide complete information requested by lenders.
Problematically, some brokers bringing loans to credit unions fall in the same three categories. Add to the equation that in many, if not most, cases the credit union commercial real estate loan is a loan from a broker's "third drawer" that cannot be placed with major banks, life insurance companies and other institutions or already rejected by them.
The skill set to work with credit union commercial real estate borrowers or their brokers is not the same as any other activity in credit union lending. It is a discipline in and of itself. Failure to meet their expectations, failure to treat them with finesse, or failure to be at least as expert as other lenders they have borrowed from, and they will not be back with another loan (and except for the truly dishonest borrower, you want them back).
Treat them like a Nordstrom shopper and they will be back again and again.
Not all will always go well, but properly identifying issues and being solution-focused builds relationships.
When law firms are employed in non-credit union lending, the closing process takes a different tempo, level of expertise, and in most cases, positivity. What transpires is the following: law firms immediately get out "hello letters" to borrowers with sample loan documents, outline of closing requirements and closing checklists.
Title commitments are ordered and reviewed early. Counsel is also identifying issues and quickly bringing them to the attention of underwriters, bringing them to the attention of borrowers. Subordination and non-disturbance agreements needing to be negotiated are moved quickly. Escrow companies are made game players.
The age-old cartoon of escrow agent, title officer and lawyer rowing together to the finish line, takes on "real time" and comes to life. Some loans can be effectively fast tracked. Expectations are well managed. It is the experience that borrowers expect.
Contrast what makes a good closing with how some credit unions close loans. Non- lawyers at credit unions dealing with borrower lawyers. Borrowers or their lawyers not seeing loan documents until a few days prior to closing. Failure of good communications with borrower and or borrower’s broker. Title review not conducted until shortly before closing. Too close to the closing date, there may be a first time look at borrower trusts or entity formation documents.
Flash back to the old cartoon of everyone rowing together, and instead, you see a shell filled with caricatures of unsynchronized rowers and the bow at a 45-degree angle dipping in the water.
To create the positive credit union loan closing experience requires a complete review of all procedures and practices. Seek feedback. Send questionnaires to borrowers following the closing, no different than the email questionnaire emailed to you following the last hotel you stayed in that wants to know about every element of its operations and whether or not your stay was pleasurable. Rate the originator, underwriter and yes, the lawyer.
Credit unions engaging in commercial lending need to create a commercial real estate lending culture. Quality lender-borrower relationships grow from a positive loan closing experience. Not all will always go well, but properly identifying issues and being solution focused builds relationships with yields that far exceed a single loan.