Mortgage Lending: Art or Science?
Question: I’ve partnered with 2 commercial real estate brokers and the owner of a title company to start a commercial mortgage company. We are well-capitalized, and with our experience in the field we feel that this is a natural extension of our talents. At the same time, we are fully aware that thousands of similar companies have gone under in the past 4 years.
Answer: Lending is a science in which most of the variables can be easily quantified. As long as you treat lending as a science, your chances of coming ahead on each transaction are quite favorable; it is when lenders treat lending as an art that the chances to fail are multiplied. Think of the subprime fiasco: some lenders survived it quite nicely, by insisting on low LTVs and verifiable income and credit. Others were enchanted by the the art of hocus-pocus which had ensnared the secondary market, and forgot what their business was all about. They are the ones who were wiped out.
