California Mortgage Finance News, Fall 2020

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THE SURGE IN COMMERCIAL REAL ESTATE LOAN DISTRESS IS MOUNTING SEE PAGE 16

NEWS MORTGAGE FINANCE Fall 2020

Lenders’ Top Three Incentive Compensation Questions Answered SEE PAGE 12

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A publication of

In neighborhoods and communities everywhere, we deliver the promise of home

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Amongst the many legal services Johnston Thomas offers the mortgage banking industry (e.g., brokers, lenders, servicers, vendors and more), such include, but are in no way limited to, as follows: Mortgage Repurchase and Make- Whole Indemnification Litigation and Mitigation (e.g., Secondary Market Investors, Agencies, etc.) Mortgage Industry Litigation (e.g., Servicer and Sub-Servicer Disputes, 3rd Party Fraud Recovery, CPL and Title Policy Actions, Appraiser E&O Claims, Loan Officer Actions, etc.) Mortgage Repurchase and Make- Whole Alternative Dispute Resolution (e.g., Arbitration, Mediation, etc.) Regulatory Compliance, Administrative and Business Services (e.g., Mock Audits, LO Compensation, MSAs, Licensing, CA Dep’t of Business Oversight, HUD Review Board, etc.)

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JAMES W. BRODY, ESQ. CHAIRMAN OF MORTGAGE BANKING PRACTICE GROUP

Regulatory Compliance Services

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Educational Related Services (speaking at conferences, webinars, training, etc.)

In This Issue… FALL 2020

CHAIRMAN’S CORNER… ……………………………………… 6

CEO’S LETTER… ………………………………………………… 7

LEGISLATIVE REPORT… ……………………………………… 8

MEDIA & MARKETING… ………………………………………11

COVER STORY………………………………………………………12

WHO’S WHO… ………………………………………………………14

FEATURED RESIDENTIAL… …………………………………16

FEATURED COMMERCIAL… …………………………………17

LATEST COMMERCIAL DEALS… ……………………………18

RESIDENTIAL………………………………………………………21

2020–2021 CONFERENCES & EVENTS… …………………29

California Mortgage Finance News is published by the California MBA three times each year: Spring, Summer, Fall/Winter. EDITOR: Dustin Hobbs PUBLISHER/LAYOUT: Wolfe Design Marketing

NEW MEMBERS……………………………………………………30

California MBA 520 Capitol Mall, Suite 440 Sacramento, CA 95814 PHONE: (916) 446-7100 FAX: (916) 446-7105 EMAIL: info@cmba.com www.CMBA.com

CALIFORNIAMORTGAGE FINANCE NEWS

CHAIRMAN’S CORNER

Challenging, But Successful, Year for Industry and California MBA

W hat a year it has been! COVID-19 has impacted all of us personally and professionally. With every chal- lenge there were many unintended consequenc- es with how our local, state and federal govern- ments responded to those challenges. These challenges have not only kept the California MBA on its toes, but has led to some of the best work in all my years associated with the team. Advocacy is a key pillar of the association. Through advocacy efforts, the California MBA achieved many key wins this year, not the least of which was the recent defeat of Proposition 15 (split tax roll) and Proposition 22 (rent con- trol), This came on top of wins earlier in the year, advocating for the defeat of AB 2501 (I called this “The Cares Act on Steroids”) and SB 939 (moratorium on evictions for commercial ten- ants). These represented huge wins for both the commercial and residential side of the business. While Advocacy is a key pillar of the Cali- fornia MBA, it is not the only pillar. Education and Connection are also key pillars. These pil- lars were best promoted and achieved through the conferences delivered by the California MBA. Despite all the challenges we faced, the team quickly and effectively pivoted away from in-person venues just weeks prior to the events and produced energetic, value-driven virtual conferences with the same quality the industry has grown to expect. As a matter of fact, the Mortgage Innovators Conference and

the Western Secondary Market Conference achieved record attendance in 2020. The con- ferences went so well that most of the sponsors this year have indicated their desire to sponsor again in 2021. We had similar success with the Western States CREF Conference as well! Like every business and industry, we face challenges at the California MBA. We see the residential side of the business experiencing record volumes and significant challenges re- main on the commercial side as many business- es are re-thinking their approach to commercial office space in the future. While the California MBA has experienced record attendance for the virtual conferences, income produced from these events has declined because registration fees needed to be reduced to adapt to the virtual format. Increasing revenues through membership, sponsorships and conferences are critical to the association’s business plan for 2021. If you are reading this and are not a member, please consider joining as you are getting the benefit of our heroic advocacy ef- forts. If you are a member, take a moment and ask your key business associates to join if they are not already a member. As members, please consider the many sponsorship opportunities that exist. 2021 will be a year of change in our industry and the California MBA will be right there to support you. In return, please consider supporting the Association in any way possible.

by BILL LOWMAN, Chairman, California MBA, CEO/President, American Pacific Mortgage

CALIFORNIAMORTGAGE FINANCE NEWS

CEO’S LETTER

Looking Ahead to New Opportunities in 2021

by SUSAN MILAZZO, CEO, California MBA A

s I write this article, we just “fell back” into standard time for the year. I know many would agree that we don’t want

offering that provides meaningful content to the industry. If you’re with a member company, you should have recently received information inviting you to join this Committee. If not, and you’re interested, please contact me directly at susan@cmba.com and we’ll get you connected. This new Committee is just one of many ways that you can take full advantage of the benefits of membership. Our existing Standing Committees include the following:

to “fall back” into anything related to 2020! What a year this has been?! Typically, this is a time of year where I’ve just come off the hectic conference season and have seen many of my old friends and some new acquaintanc- es through our conferences and those of the national MBA. While the virtual conferences we’ve all executed have been successful as far as content and networking, we all miss the 3D versions of ourselves in real life! We will never again take for granted the things that we had such ready access to prior to March 2020. But its time to move forward. Although this year has stretched us in new ways, the California MBA has stayed strong and is making plans to expand the benefits of membership in 2021! For years we’ve all seen the statistics about the demographics of the real estate finance industry. They do not point to a bright future. We need to take action to attract new entrants into this market and the need for diversity is as strong as its ever been. But where does a company start? What can you, as mortgage industry leaders, put in place for your teams? Does your company share the same struggles as others? These are topics that we’ll explore through our new Diversity & Inclusion Com- mittee. We are so pleased to have the interest of several companies who are eager to help us make this another valuable membership

• Legislative Committee • Mortgage Technology &

Marketing Committee (MTAM)

• Mortgage Quality &

Compliance Committee (MQAC)

• Legal Issues Committee • Membership Committee • Diversity & Inclusion Committee • Organizational Committee for any of our major conferences • Mortgage Innovators Conference • Western Secondary Market Conference • Western States Commercial Real Estate Finance Conference Participation in these committees is open to anyone who is employed by a member com- pany. This is a great way to give back to the industry as well as expand your professional …CEO’s Letter continued on page 30

CALIFORNIAMORTGAGE FINANCE NEWS

LEGISLATIVE REPORT

Legislature Works Through COVID-19, Industry Defeats Dangerous Bills

2 020 is a year most of us would like to forget. Our plans have been scrapped, the new “normal” is anything but normal, and we all know neighbors, family members or local small businesses that have been negative- ly impacted by the current COVID-19 crisis. The Legislature has been a microcosm of this broader experience. At least three lawmakers tested positive, including a Republican senator who exposed nearly the entire Senate GOP caucus in the session’s final week. That forced all but one Senate Republican to participate re- motely in the session’s final days, complicating and slowing down the chamber’s process for passing bills. During a normal year, more than 1,000 bills are typically sent to the governor in the final weeks of a legislative session. This year, it was just a few hundred. COVID-19 also made it more difficult to communicate, forcing political discussions and advocacy efforts to video calls instead of the usual face-to-face hallway conversations that typify the normal end-of-session legislative process. The pandemic also amplified the usual end-of-session friction between the Assem- bly and the Senate. Leadership of the two houses disagreed in March about whether to take an emergency recess as the state was shutting down and whether they could legally

by PAT ZENZOLA, California MBA Legislative Counsel, KP Public Affairs

continue their business remotely. The Senate returned from the recess a week later than the Assembly and struggled to keep pace with the Assembly. Senators complained that they dropped many more of their bills to fit the compressed schedule than their counter- parts in the Assembly. The Legislature briefly ground to a halt in late July over the clash. It became clear on the last night of session that not everything could get done, and it was obvious the patience of policy makers was stretched thin. Remote participation was a clear flash- point of the Assembly and Senate friction and it backfired on both houses. The Senate embraced it, but in the final hours of session Senate Democrats argued that Republicans were intentionally using remote participation to stall the legislative process, thereby pre- venting some major bills from passing by the midnight deadline for session to adjourn. As- sembly leadership publicly expressed concern that remote participation was legally shaky and refused to allow a Democrat Assemblywoman who had just given birth permission to partici- pate electronically. In response, the Assembly- woman came to the Assembly floor with her daughter in her arms to vote on key legislation,

…Legislative Report continued on page 31

CALIFORNIAMORTGAGE FINANCE NEWS

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MEDIA & MARKETING

Make the Most of Your Virtual Conference Experience

2 020 has been a little crazy, no? By this time in the year, most, if not all, of the major industry conferences have come and gone. Many that were planned for early in the year were postponed or cancelled. Those that were either scheduled for later in the year or could be postponed pivoted to a virtual format, and by now, it is safe to say that most people reading this have “attended” a virtual conference at some point this year. From the conference producer standpoint, the challenges were enormous—from keeping the momentum of the conference going to planning out how to record/livestream sessions to figuring out how to reimagine the exhibit hall in a virtual world. On the flip side, the challenge for attendees and sponsors was to find new ways to extract value from the events; I think for attendees looking for great educational content, it wasn’t hard to find. Many of the same high-quality speakers were available this year—in live and pre-record- ed formats. However, the real challenge was for sponsoring companies to adapt to the new en- vironment and find new ways to extract value from the conference experience. Suddenly the playbook of sending X employees for X days (hotel room/client dinners, etc.) and sending an expensive booth set up was thrown out the window. With little notice and no “Pandemic Conference” handbook to refer to, company events and marketing personnel had to make judgements on the fly and do the best with the tools they had and cards they were dealt.

by DUSTIN HOBBS, Communications Director, California MBA

Now that the 2020 conference season has ended, we’re ready for a return to in-per- son events in 2021, right? Not so fast. As you likely already have figured out, many events will still be virtual or hybrid (some in-person, some virtual aspects) next year. That means that you’ll need to build a gameplan for getting the most for your conference buck. Here are a few helpful tips to keep in mind as you plan for 2021 conferences and events: Don’t wait and see—plan now. Unfortu- nately, it looks increasingly clear that many conferences (particularly those in early-mid year) will be virtual in 2021, so don’t have a wait-and-see attitude. Remember that con- ference planners are making plans and signing contracts right now for events next year, and they are in the same boat—many of them will make an early call to have their event virtual (or hybrid) instead of hoping that the emer- gence of a vaccine or other development changes the environment and allows for full in-person (pre-2020) large events. Addition- ally, governors like Gov. Gavin Newsom have made it clear that a return to large gatherings is not happening anytime soon, and many large companies are still restricting the travel of their employees and will do so throughout most of 2021. Don’t wait until the last minute to engage the conference. As you likely found out this …Media & Marketing continued on page 33

CALIFORNIAMORTGAGE FINANCE NEWS

3 COVER STORY Lenders’ Top Three Incentive Compensation Questions Answered DISCLAIMER: The following article is for informational purposes only and is not intended to constitute legal advice.

I n the midst of the people shortages and hiring frenzies that accompany ele- vated loan volumes, incentive compensation plans have become a hot topic among mortgage lenders. But even under today’s immense pressure to staff up and maximize production efficiency, it’s important not to put compensation compliance on the back burner. Because of our respective positions as founding partner of a law firm dedi- cated to mortgage compliance and founder CEO of a mortgage-specific incentive compensation management platform, we constantly field questions about how to compliantly execute mortgage employee incentive compensation plans. In re- sponse, we’ve put together this article, which provides a succinct overview of the Loan Originator Compensation (LO Comp) Rule and addresses three commonly asked questions about its practical applications. UNDERSTANDING THE LO COMP RULE The LO Comp Rule was enacted by the Consumer Financial Protection Bu- reau (CFPB) after the financial crisis to eliminate steering borrowers into costlier loans in order to earn higher commission. Simply put, the LO Comp Rule prohib- its compensating LOs based on a term of a transaction or a proxy for a term. Be- fore exploring practical applications of the Rule, lenders first need to understand what counts as a proxy for a loan term and familiarize themselves with a couple notable exceptions to the LO Comp Rule. Generally speaking, loan term proxies are factors that substantially act like loan terms despite the fact that they are not explicitly called a “term of a transaction.” A proxy can be identified by administering a two-pronged test known as a proxy test. A factor is considered a proxy and cannot be used for determining LO compensa- tion if (1) it varies in correlation with an explicit loan term over a significant number

by LORI BREWER, Founder and CEO, LBAWare and LORETTA SALZANO, Founding Partner, Franzen and Salzano, P.C.

…Cover Story continued on page 13

CALIFORNIAMORTGAGE FINANCE NEWS

Cover Story continued from page 12…

of transactions and (2) the LO has the ability to add, drop or change the factor in originating the loan. Together, the two prongs of the test are designed to keep the interest of the LO aligned with the interest of the borrower. There are a handful of limited exceptions to the LO Comp Rule’s re- strictions on using loan terms (or their proxies) for determining LO compen- sation. One allows lenders to compen- sate at a fixed percentage based on loan amount, and another allows lend- ers to cap compensation payments at minimum and maximum dollar values. Now armed with a fundamental understanding of the LO Comp Rule, let’s examine the three incentive com- pensation questions we hear the most. IS IT OKAYTO PAY LOS DIFFERENTLY BASED ON A LOAN’S REFERRAL SOURCE? The short answer is yes, it is okay to pay LOs differently based on a loan’s referral source. In fact, it is com- mon for lenders to pay LOs differently for company-generated leads versus self-sourced leads. Companies can even identify referral sources more granularly and vary pay accordingly if they so choose. It is important to note that in order to comply with the LO Comp Rule, nei- ther the LO nor the lender can manipu- late the referral source. For instance, a lender must not recharacterize the lead source from self-sourced to compa- ny-generated when a borrower asks to match the rate of a lower-priced com- petitor. Even though reducing the bor- rower’s rate while fully compensating the LO does not make good business

sense to the lender, the lender may not escape its economic bind by mischarac- terizing the deal as a house loan. That would be fraudulent recordkeeping. CAN LENDERS PAY LESS TO LOS WHO ARE SUPPORTED BY LO ASSISTANTS (LOAS)? Again, the short answer is yes, it is permissible for lenders to factor LOA support into an LO’s incentive com- pensation, but not without conditions. For starters, LOs must always be paid as if they are using an LOA. It is risky for LOs to pick and choose when they use an assistant, because that could lead to steering. If a multistate lender does not have an appropriately licensed LOA in a state in which the LO is licensed, it is permissible for the LO’s comp to vary, because the LO does not have the ability to manipu- late their use of the LOA. Also, it is advisable for lenders to steer clear of the word “deduct.” Ac- cording to HUD guidelines published in the HUD Handbook and Mortgagee Letter 00-15, employees cannot be personally liable for any company op- erating expenses or overhead. There- fore, it must be clear that the compa- ny, and not the LO, is responsible for the LOA’s pay. This is also important from an employment law perspective. CAN A PRODUCING BRANCH MANAGER MANAGE A P&L AND BE COMPENSATED FOR EFFECTIVE MANAGEMENT OF EXPENSES AND PROFIT SHARING? The short answer is yes, it is per- missible for lenders to reward shrewd

…Cover Story continued on page 36

CALIFORNIAMORTGAGE FINANCE NEWS

WHO’S WHO TREVOR KOSKOVICH Real Estate Forum, the commercial

KIM SPALDING ROVIN NARINE

CHARLES R. LOWERY, JR.

New American Fund- ing, a leader in the mortgage industry, has hired Charles R. Lowery, Jr. as their Director of Legislative

AEI Consultants announces the promotions of

real estate indus- try’s key monthly publication, selected Trevor Koskovich, pres-

Kim Spalding and Rovin Narine. These technical professionals have been promot- ed to Vice Presi- dents of National Accounts. Kim and Rovin are both trusted

ident—Investment Sales, as one of 15 Influencers in Multifamily for 2020. Koskovich is leading the growth of NorthMarq’s Investment Sales plat- form, which has grown into 15 of the company’s 38 offices since April 2018. In just over two years, the team has grown to over 60 professionals in 15 offices, from fewer than 20 trans- actions in the first year to more than 120 in 2019 and 2020. The business has already completed more than $3 billion in multifamily sales volume, with $1.5 billion completed in refer- ral business to debt and equity, with hundreds of active listings scheduled to close by the end of 2020. “Trevor’s enthusiasm and tenacity have helped us build a very successful investment sales platform in a very short amount of time. Not only is he bringing great new talent to North- Marq, he’s also driving a new level of collaboration between investment sales and debt and equity producers in our local offices, leading to great re- sults for our clients, and feeding new business activity,” said Jeffrey Weidell, NorthMarq’s chief executive officer.

Policy and External Affairs.

Lowery brings more than 20 years of mortgage, housing, and advocacy experience to the position. Based in Washington, D.C., he will repre- sent the company in aligning with national organizations to advance the company’s mission of increasing Black homeownership. Lowery is also responsible for de- signing and managing New American Funding’s legislative and regulatory research and analysis. He will develop comprehensive internal and external messaging on policy goals and solu- tions, while driving recommendations through policy papers and testimonies. “We proudly welcome Charles to New American Funding,” said Patty Arvielo, President of New American Funding. “He brings his immense reg- ulatory expertise to the company and is perfectly aligned with our commit- ment to increase homeownership in communities of color.”

professionals with a track record of responsiveness and technical ex- pertise. We are excited to see them take on this opportunity. They will be joined with other trusted members of their teams, including Nate Hersey, Gary Duke, Margo Mackey, Nicole Burns, Angela Hunt and Matt Glennon. The team collaborates with our Due Diligence, Building Assessment, Zon- ing, ALTA Survey, Construction Risk, Site Mitigation, and Capital Planning division leads. Kim and Rovin also work close- ly with our HUD division leads, Jeb Bonnett and Staige Miller, to serve our clients in the HUD space, providing HUD-related multifamily and health- care investigations, due diligence, capital needs assessments, environ- mental site assessments, architectural and cost reviews, energy auditing and certifications for lenders, public hous- ing authorities, and equity investors.

CALIFORNIAMORTGAGE FINANCE NEWS

WHO’S WHO

CINDY SNOW

ANN THORN RENEE GALITIS

FormFree® recently announced the in- clusion of Director of Product Cindy Snow in Housing- Wire’s list of 2020 HW

If you would like to submit an employee to be recognized in an upcoming issue, email dustin@ cmba.com for more information.

Caliber’s Ann Thorn and Renee Galitis were featured on the cover of HousingWire’s August publication for their recogni- tion as Women of Influence. Criteria for this award is based on professional

Insiders. Now in its fifth year, the annual awards program recognizes 50 housing industry professionals making critical contributions to their companies’ success. Since joining FormFree in May 2019, Snow has focused on creating operational processes to enhance product and service quality for Form- Free’s more than 1,000 mortgage lenders customers. Her contributions ushered in a 65% year-over-year surge in adoption of AccountChek, the com- pany’s market-leading automated veri- fication product that allows lenders to digitally verify borrower asset, income and employment information. “Cindy has mastered the ability to translate the executive team’s ambitious vision into a tactical plan of action at every level of the organiza- tion,” said FormFree Founder and CEO Brent Chandler. “She plays a pivotal role in nearly every aspect of our busi- ness, from product development to defining our partner relationships to marketing, sales and even compliance. As a direct result of her work, our customers and their borrowers enjoy a faster, easier and safer loan process.”

Learn about… ADVOCACY

achievements within their organi- zations, contributions to the overall industry, community outreach, client impact, and personal success. As Chief Loan Administration Of- ficer, Ann has expanded and evolved Caliber’s servicing and production operations to better service our customer’s needs. Renee, Caliber’s Chief Information Officer, supports the organization’s continuous growth and innovation by improving the capacity and capabilities of Caliber’s underlying technology.

LEGAL ISSUES COMPLIANCE TECHNOLOGY INDUSTRY NEWS MEMBERSHIP CONFERENCE INFO

RESOURCES …and much more!

Visit us on the web @ www.cmba.com

Have you updated your Membership Directory LISTING? One of the benefits of your California MBA membership is inclusion in our online Membership Directory! Make sure your company’s

info is up to date! Email dustin@cmba.com for more information!

CALIFORNIAMORTGAGE FINANCE NEWS

Concern Over VA Refinance Loan Advertising Practices Leads to CFPB Consent Orders FEATURED RESIDENTIAL I n November 2017, the Consumer Finan- cial Protection Bureau (CFPB) and U.S. Department of Veterans Affairs (VA) is-

(MBA) sent a letter to the VA addressing the MBA’s concern regarding potentially deceptive advertising of VA refinance mortgage loans. In the letter, MBA stated that “[s]uch solic- itations can be very harmful to veterans, as they may lead them to obtain refinances that they do not fully understand or are not in their financial interest. MBA therefore encourag- es VA to use its existing authorities to deter these misleading solicitations in accordance with its mission to ensure appropriate con- sumer safeguards in its home loan program.” In particular, echoing concerns of the CFPB and VA in their joint warning order, the MBA noted as troublesome advertising practices (1) language or symbols such as logos or stamps to imply affiliation with, or endorsement by, the federal government, (2) the presentation of a false sense of urgency or a strict deadline for the consumer to act, and (3) misleading de- scriptions of interest rates or other loan terms, including representing an adjustable-rate loan as a fixed-rate loan or promising the ability to skip one or more payments. Starting in late July 2020, the CFPB began issuing consent orders against lenders regard- ing direct mail advertising practices for VA refinance mortgage loans. The consent orders

by RICH ANDREANO, Practice Group Leader, Ballard Spahr LLP and AMANDA PHILLIPS, Of Counsel, Ballard Spahr LLP

sued a joint warning order to veterans regard- ing unsolicited refinance mortgage loan offers that “appear official” and sound “too good to be true.” The CFPB and VA warned about several issues, including offers to skip one or two mortgage payments, to receive an escrow refund, and to receive low interest rates with- out specific terms. To address concerns with practices involv- ing VA refinance mortgage loans, Congress included in The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (the “Growth Act”) provisions designed to protect veterans from “loan churning” or “serial refinancing.” The VA published policy guidance in Circular 26-18-13, dated May 25, 2018, to advise lenders of program changes as a result of the Growth Act. More recently, the VA published Circular 26-20-16, dated April 20, 2020, advising lenders of VA’s expectations of self-identification, review, cure and quarterly reporting of Interest Rate Reduction Refinanc- ing Loans (“IRRRL”) loans that did not comply with the Growth Act and VA policy. About a year after the passage of the Growth Act, the Mortgage Bankers Association

…Feat. Residential continued on page 37

CALIFORNIAMORTGAGE FINANCE NEWS

The Surge in Commercial Real Estate Loan Distress is Mounting FEATURED COMMERCIAL E ver since the Coronavirus pandemic hit our shores and began its deleterious spread throughout the United States, soundly, and their respective borrowers are quality, the force of the virus this many months in is undeniably taking a major toll and banks are starting to seek out solutions. According to Evercore ISI, commercial real by PAT JACKSON, CEO, Sabal

eyes have been focused on the nation’s finan- cial institutions. Over the past several months, experts within the industry have speculated regularly on the magnitude of the negative impacts of the virus on banks. Closer to the beginning, when many still believed the virus might prove a shorter-lived phenomenon, bank distress forecasts were less severe. Economists and bankers alike pointed to the last major downturn—the Global Finan- cial Crisis of 2008 and the major recession that followed—as well as the unhealthy state of banks going into that crash as significant counterpoints to the health of these institu- tions just prior to COVID-19. Indeed, in late Q1 banks were much better capitalized than they were in 2008, largely due to sweeping bank regulations introduced under the Obama administration and the much more stringent loan underwriting that has occurred since. The greater position of banks this time around was generally felt to be a safeguard from an onslaught of potential bank failures. As the virus has droned on, however, opinions have shifted. Of major concern are the commercial real estate loans currently on bank balance sheets in the asset categories of hospitality, retail, office and even multifamily. While many of these loans are underwritten

estate loans that fund malls, warehouses, offic- es, and other business properties are a signifi- cant portion of banks’ balance sheets, compris- ing about 22% of their total loans. 1 Consider how many retailers are shuttering physical locations and declaring bankruptcy, as well as how many office tenants are reconsidering their space needs moving forward. Hospitality properties tell a foreboding story as well, with business and personal travel slowed these past many months to a near halt. The Federal Reserve in late June signaled its concern about the issue when it indicated a prolonged economic downturn could strap the nation’s bigger financial institutions with up to $700 billion in losses from soured loans and ordered them to cap dividends and halt share buybacks in the third quarter to conserve funds. Additionally, in its annual stress test for banks, expanded this year to study effects of the downturn caused by the virus, the Fed’s analysis found that if the economy takes lon- ger to recover, banks could experience losses similar to the 2008 crisis. 2 Trepp’s September 2020 Q2 CRE Bank

…Feat. Commercial continued on page 39

CALIFORNIAMORTGAGE FINANCE NEWS

Latest Commercial Deals

Bellwether Enterprise Closes Nearly $98M Deal for Industrial Assets

The interest rate of the 25-year, fully amortizing loan was locked at application. The loan includes prepay flexibility, secondary financing, partial release and substitution of collateral. Bellwether Enterprise EVP, Shelley Magoffin and SVP, Max Sau- erman arranged the loan with cor- respondent life insurance company, Thrivent Financial. “Nearly all the parties involved were working from home throughout the transaction, which closed less than 60 days from rate lock. It is great to see what can be accomplished when so many people work towards a common goal,” said Sauerman. (AMI). The apartment complex, to be comprised of four three-story build- ings, is intended to be net-zero-en- ergy and is funded in part by a grant received from the State of California’s Greenhouse Gas Reduction Fund in 2019. The property will include a 3,000 sq. ft. community building with test kitchen, lab, playground, swimming pool, bike storage, fitness center, and BBQ areas. The Town of Brawley is lo- cated in Imperial County approximately 130 miles due East of San Diego, CA.

fifth property is located in the Inland Empire West submarket. Ranging in size from 60,000 square feet to more than 500,000 square feet, with clear heights rang- ing from a minimum of 18 to 36 feet, each of the warehouse and distribu- tion buildings are of concrete tilt-up construction. With minimal office build-out, the properties’ total leas- able area comprises nearly 950,000 square feet. One of the buildings features refrigerator space.

Enterprise Community Investment Inc.’s commercial mortgage banking subsidiary, Bellwether Enterprise Real Estate Capital LLC has closed a $97.7 million loan deal for five warehouse and distribution buildings. Of the assets, four of the proper- ties are located in Los Angeles Coun- ty’s South Bay submarket, and the

Greystone Affiliate, America First Multifamily Investors, L.P., Provides Construction Financing for New Affordable Housing in California

Pacific West Communities, based in Idaho, will benefit from the ATAX construction financing with a 24-month term and paydown of tax credit equity, and additional equity from a low-income housing tax credit investor. The project will be funded by $15 million in tax-exempt bonds and $7 million in taxable bonds, to be privately placed with ATAX. The planned property, Ocoti- llo Springs Apartments, will provide low-income housing for residents meeting 30-60% Area Median income

Greystone affiliate, America First Mul- tifamily Investors L.P. (ATAX), has pro- vided $22 million in tax-exempt and taxable bond financing for the $28.7 million construction of a 75-unit af- fordable housing property in Brawley, CA. The transaction was originated by Frank Bravo, senior vice president and originator at ATAX.

CALIFORNIAMORTGAGE FINANCE NEWS

Latest Commercial Deals iBorrow Provides $6M Loan for Skilled Nursing Facility in Pasadena

the borrower needed time post-liti- gation to season the property before approaching HUD for a permanent take-out loan.” The borrower, Golden Cross Health Care, offers a 24-hour licensed nursing care targeting the prevention or postponement of acute episodes of physical or mental illness, and encour- aging patient independence to the extent of the patient’s ability. Golden Cross Health Care is certified for Medicare and Medi-Cal residents. The property is surrounded by numerous residences and several healthcare facilities, including a local hospital and pharmacy. (BVK), one of Germany’s leading pen- sion funds. Additionally, JLL worked on behalf of the buyers to secure the acquisition loan, which will allow the Transamerica Pyramid Tower and the surrounding complex to continue to claim its place as one of the truly pre- mier Class A office towers globally.

approximately one acre of land and features 42 units and 96 beds, and is currently 97% occupied. “The property is successful, with occupancy levels consistently above 95% since the borrower purchased it more than 20 years ago,” said iBorrow CEO Brian Good. “The challenge for the borrower was to find a lender that could close quickly to refinance a loan which matured at the end of March, with no extension. Also, due to a recently settled partner dispute,

iBorrow, a private direct lender for commercial and multi-family real es- tate, has provided a $6 million loan for an owner-operated, two-story skilled nursing facility situated in one of the oldest parts of Los Angeles, Pasade- na, at 1450 N Fair Oaks Ave. Origi- nally constructed in 1965 and since remodeled, the nursing facility sits on

San Francisco’s Transamerica Pyramid Center commands $650M

the world’s most recognizable office towers, whose iconic architecture transformed the San Francisco skyline and remains to this day an enduring symbol of the City by the Bay. JLL represented the seller, Trans- america (as advised by its affiliate, Aegon Asset Management), and procured the buyer, a joint venture partnership between SHVO and Deut- sche Finance America (DFA), which included a consortium of investors led by Bayerische Versorgungskammer

JLL Capital Markets announced recently that it has closed the $650 million sale and $390 million financ- ing of the Transamerica Pyramid Center Complex, a three-building, 703,537-square-foot, Class A office complex and development parcel encompassing an entire city block in the heart of San Francisco’s Finan- cial District. The sale included the Transamerica Pyramid Tower, one of

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CALIFORNIAMORTGAGE FINANCE NEWS

Latest Commercial Deals Westcore Expands Bay Area Portfolio with 40K-SF Industrial Property in San Jose

Jose market as the market is perpetu- ally under-supplied,” said Peter Mette, managing director at Westcore. “Over time, owning the two warehouses next door to one another will provide flexible leasing options and a substan- tial contiguous parcel of land nearby the new Berryessa BART station.” Both Westcore and the seller were represented in the transaction by Jeffrey Ida and Cole Ferrari of Marcus & Millichap. King Road is expected to become vacant over the next twelve months, after which Westcore will initiate its improvement plans. The property represents Westcore’s sixth industrial acquisition in 2020.

located on a corner lot and offers 29- foot clear height and a secured yard. Westcore will renovate the property to include a new roof, seismic retrofit- ting, parking lot repairs, office recon- figuration and upgrades. “In the short-term, an invest- ment in 660 North King is attractive because it is in keeping with one of our investment strategies of acquiring functional facilities in infill markets with dense populations. We continue to like industrial product in the San

Westcore, a leading industrial real estate acquisition, development and asset management firm, acquired a 40,000-square-foot industrial ware- house located at 660 North King Road in San Jose, California, for $9.2 million. The property is located adjacent to a similar 87,000-square-foot industrial warehouse Westcore acquired earlier this year at 1800 Dobbin Drive. The King Road warehouse is

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RESIDENTIAL

Mortgage Lenders: Digitally Transform or Die The concrete impacts of AI/ML and Robotics Process Automation for achieving digitization of the home loan lifecycle

CARPE DIEM According to a recent 2020 CNBC report, homebuyer demand remains robust, held back only by the severe shortage of homes for sale. Buyer demand was strong heading into the spring market and appeared to have gained strength from the pandemic, as consumers stuck in smaller homes or urban apartments sought more space in the suburbs. Homebuilders are ramping up construction and there is a surge in mortgage applications for newly built homes amid the pandemic. In the current economic recovery, the housing market remains a bright spot. City dwellers are fleeing crowded cities and flocking to the sub- urbs partly because of the pandemic but also because mortgage rates remain incredibly low, thanks to the Federal Reserve slashing interest rates to zero. The report also indicated that low refinance rates ignited a refinancing boom accounting for more than 60% of mortgage applications this summer. Digital transformation has drastically im- pacted the mortgage process and it has become imperative for lenders to stay relevant to these transformations and adopt them proactively. The new Fannie Mae Mortgage Lender Sentiment survey highlights the positive impact MORTGAGES ARE GOING DIGITAL

by MOHAMMAD RASHID, Head of Fintech, Tavant

of digital transformation. The report unveiled that lenders who dedicate a considerable deal of effort into both the front-end as well as the back-end digital transformation, experience far greater business benefits than those who do not—and the difference is not even close. Another Forbes Insights survey revealed that eighty-two percent of banking and lending executives say digitization is transforming key mortgage processes. The survey also indicated that 79% of lenders strongly believe they will be able to leverage their digital mortgage plat- forms including artificial intelligence (AI) and related tools to streamline analysis of digitized consumer and asset information. In that way, they will dramatically improve the overall quali- ty, security, and integrity of decision making. With the sudden implementation of phys- ical-distancing policies and closing of services in many geographies, organizations have had to turn on a dime and adapt to serving cus- tomers almost entirely digitally (consider the Real Estate space). At the same time, they have also been receiving massive customer inquiries and refinancing requests. Modern borrowers want sophisticated digital transactions with extreme personal-

…Transform continued on page 40

CALIFORNIAMORTGAGE FINANCE NEWS

RESIDENTIAL

Servicing Considerations under the CARES Act O n August 27th, the Federal Housing Finance Agency (FHFA) announced that they were extending the fore- business—in particular, mortgage servicers? For most of the latter half of this decade, by JEFFREY B. FLORY, CMB, SVP—Sales, The Compliance Group

mortgage servicers have been steady from a process perspective. The quality of origina- tions was higher. That transferred over to the servicing side, where delinquency levels were low. Firms could easily manage and implement regulatory and process changes into their sys- tems with relative ease. Loans that did fall into a loss mitigation process could be given care and attention, and the consumer experience was generally better. The speed with which the shutdowns impacted the economy was alarming. While the CARES Act represents a bold move to pre- vent a greater economic tragedy, oversight of servicer responsibilities under CARES has been light at best. In a July report from the FHFA Office of Inspector General (OIG), they report- ed that the agencies relied on their reps and warrants with their servicers that all applicable laws and regulations were being adhered to. In the same report, however, they discovered a lack of consistency in terms of eligibility of CARES Act claims and forbearance obligations post-pandemic. The December 31st deadline will be here faster than we think. If there is no continuation of the foreclosure moratorium, mortgage ser- vicing organizations need to be ready for a dra-

closure moratorium (initially set to expire on August 31st) to December 31st, 2020, due to the continued impacts of the coronavirus. The expenses associated with the extension were estimated to be an additional $1.7 billion and shouldered by the FHFA. However, the exten- sion was necessary and, as articulated by FHFA Director Mark Calabria, was designed to ‘keep borrowers in their homes during the pandem- ic’ and provide protections for more than 28 million homeowners with eligible mortgages. With an election pending and the hyper- bole escalating on both sides, an additional round of stimulus appears unlikely before the election, with fundamental disagreements on which constituencies should or should not be benefactors of a new stimulus plan. That is notwithstanding Federal Reserve Chairman Jerome Powell’s assertion that there are more significant risks not a new stimulus than in doing too much. One undeniable reality of our congres- sional leaders failing to come together on a compromise plan is that uncertainty will reign, and fear feeds on fear. Whether the Presi- dent’s promises of a bold new post-election stimulus via executive fiat will ease those fears will manifest over the next couple of weeks. What does this mean for the mortgage

…CARES continued on page 42

CALIFORNIAMORTGAGE FINANCE NEWS

RESIDENTIAL

Increased Delays in Foreclosures, Suppressed Bid Prices, Other Problems California’s New SB 1079 Creates a Host of Issues for Lenders, Servicers and Foreclosure Bidders O n September 28, 2020, Governor Gavin Newsome signed SB 1079 into law as part of a package of 15 bills SB 1079’S NEW FORECLOSURE SALE REQUIREMENTS by MICHAEL FLYNN, Co-Chair of Financial Services Regulatory

Historically in California, nonjudicial foreclosure sales on real property have been deemed complete and final when the auc- tioneer accepts the final bid and the trustee records and delivers to the purchaser a trust- ee’s deed. This finality provides the foreclos- ing parties with an efficient remedy against a defaulted loan. “Eligible Bidders”—a Select Class of Persons Who Can Wait Weeks to Outbid the Prevailing Bidder at a Trustee’s Sale Beginning on January 1, 2021, and effec- tive until January 1, 2026, SB 1079 creates several classes of buyers/bidders at a trustee’s sale of a one-to-four unit residential property, who the law refers to as “eligible bidders” who will have special rights to significantly delay final resolution of trustee’s sales and deny bidders the ability to obtain title. These eligible bidders include: …SB 1079 continued on page 43

aimed at establishing new rights for tenants and community groups. The law, which applies to one-to-four unit residential properties, creates many new foreclosure uncertainties, including delaying the finality of trustee’s sales, causing significant delays in determining who is the ultimate successful bidder, tying up bid- ders’ capital without certainty that bidders will eventually obtain title to the property, giving preferential status as bidders to certain par- ties, including tenants residing at the property, and leaving title to properties in the foreclosed borrower’s name for weeks after a trustee’s sale. All of these factors will cause lenders and servicers to have to develop strategies for more uncertain credit bidding, give foreclosed borrowers new delay tactics, suppress bid amounts, increase the likelihood of waste and other damage to foreclosed properties, and ultimately increase the cost of residential loan borrowing for consumers.

Industry Group, Co-Chair of Title

Insurance Industry Group, Buchalter’s Commercial Finance Practice Group.

CALIFORNIAMORTGAGE FINANCE NEWS

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