One of the most frequent questions I get asked it seems is "what do you do at the bank?" I think most people assume I work in residential mortgages because I am an underwriter. However, that is pretty far off from what I do so I thought it'd be interesting to post about my everyday life. I work in a very "niche" job and its not simple, just warning you. I'll also caveat with this is pretty boring stuff.
I work in the Investment Banking in a tiny tiny tiny little group called the "REPO Group". I'll start with saying, no I
don't repossess cars or houses all day. I repeat, no, I don't repossess anything.
What REPO stands for is actually Repurchase Obligations - a big fancy term that would make your head spin if I tried to actually explain. My group works with large investment company's, trusts and funds that have been set up to LEND on commercial real estate. The company's we work with are commercial real estate
lender's, not owners of commercial real estate. Big difference between a standard underwriter.
What we do is provide these companies financing - think of it as a big "credit card" - so they can provide loans to their clients. For example, a fund may raise $200 million in capital from investors (rich people, pension funds, etc). They would them come to our group to obtain a REPO facility, of, say, $200 million. So, our group (me!) will fully underwrite the client - its parent company, its investors, its business model, its targeted investments (always commercial real estate, but changes from there), etc - submit our underwriting and recommendation to our credit committee who will ultimately determine if we will provide them financing.
From the point we close the larger REPO Facility with the client, the client begins originating or purchasing commercial real estate loans. The client will work with their borrower and close its loan. Once closed, the client will then provide my group (me) with all of the information pertaining to the loan (financial statements, rent roll, appraisal, on and on and on).
Each clients facility has specific parameters that all loans must meet in order to be considered by Wells Fargo for funding. My group (me) will then fully underwrite our clients' loan. I then run all of the numbers, understand the borrower and
all of the details of the loan and the underlying property (is it being renovated, is a big tenant leaving soon, who are the tenants, etc). We then determine if we will fund that loan on our clients REPO Facility and how financing we will provide.
It is easier explained in an example:
Our client, Larry Lender is working with Billy Borrower who wants to purchase a hotel in NYC. The hotel costs $100 million. Larry Lender will provide Billy Borrower 75% of that (for example), or $75 million. Larry Lender will underwrite the hotels performance, the market, Billy Borrower, etc and structure a loan accordingly. Once Larry Lender (who only has $200 million total money to close loans) closes its loan with Billy Borrower, Larry Lender submits the loan, property, and details on Billy Borrower to me.
As mentioned, I look at everything in detail. Each facility is also structured with specific parameters for each collateral type (in this case, a hotel - could also be an office, an apartment complex, etc). I will then underwrite the hotel Billy Borrower purchased to be sure the loan meet the requirements. Larry Lenders Facility, in this example, says that hotels are funded at a 50% advance.
SO, once I get my credit committee comfortable with the loan, Wells Fargo will then fund Larry Lender 50%, or $37.5 million, against their $75 million loan. Larry Lender then pledges its mortgage to Wells Fargo. This means that if Billy Borrower were to default on its loan, Larry Lender would have to pay Wells Fargo back $37.5 million. If Larry Lender was unable to pay back Wells Fargo $37.5 million, Wells Fargo would then own the hotel. Larry Lender will pay Wells Fargo a fee in order to have the loan on its facility.
From Larry Lenders perspective, having a facility is beneficial, because now they have $400 million in funds to lend with, versus just the initial $200 million they received from their investors. From Wells Fargo perspective, we earn fees from closing the facilities (upfront fees), we earn a portion of the interest payment that Billy Borrower pays Larry Lender every month, we earn fees for the portion of each facility that is not being used, and we often earn fees when the facility pays off. Our investments are pretty safe. If anything were to go wrong with our client, Larry Lender, we would, in this instance, own a hotel that cost $100 million for only $37.5 million. Wells would then step in (worst case scenario here) as the lender to Billy Borrower. Clients will typically have several loans pledged to their facility and Wells Fargo typically will only fund, at most, 75% of Larry Lenders loan amount.
Well, like everyone's job, there's a lot more to in than is simple and easy to explain on a blog but you get the idea! That ended up being much longer than I planned!
I hope everyone had a great weekend....more updates to come soon!
