TheReturn of the Loan Solution Harvard Case Solution & Analysis


The Zoe Greenwood, Vice President at the Foundation Investment Advisors (FIA) is looking through the proposed memorandum regarding the new commercial mortgage-backed securities (CMBS) deal that is on April 1, 2010. This is the time when the opportunities related to the commercial mortgage investors have been miserable to the point of comical.

Moreover, this new commercial mortgage-backed securities (CMBS) provides the first opportunity to purchase CMBS that is backed by the loan to the various borrowers as the securitization pipeline has been closed by the credit markets June 2008.

However, new commercial mortgage-backed securities (CMBS) provides the Zoe Greenwood a new investment opportunity to recommend the firm’s latest client United Principal Life (UPL) about the opportunity that they can avail. United Principal Life (UPL) is a mid-size life insurance company that provides whole life policies to its customers.

In addition, United Principal Life (UPL) like many other life insurance companies has persisted a passive investor during the current financial crisis. This means that UPL has tolerated a significant loss on its commercial mortgage as well as on the commercial mortgage bond portfolios. The United Principal Life (UPL) is searching for more allocation of capital to the real estate.

The Greenwood has decided to suggest the United Principal Life (UPL) an expansion in their traditional commercial mortgage business as these new bonds are looking interesting. The main difficulty for the Zoe Greenwood in analyzing whether the new commercial mortgage-backed securities (CMBS) deal could offer the United Principal Life (UPL) a superior risk-return tradeoff in comparison with making individual mortgage loans.

Foundation Investment Advisors (FIA) client base has mainly   focused on the nonprofit such as foundations, endowments, municipalities and charities, but now the firm has started advising the mid-size insurance companies as well as  few private  high-net worth clients.

Foundation Investment Advisors (FIA) in order to advise its clients and provide them recommendation about the investment believe in the holistic approach. Moreover, Foundation Investment Advisors (FIA) usually recommend its clients regarding the portfolio allocation to fixed income products as wealth as preservation is important to most of its customers.

Foundation Investment Advisors (FIA) not only have capabilities to recommend its clients in making investments in municipal, corporate bonds, residential and   mortgage-backed securities, but it has relationship with its clients that help them to make direct real estate loans.

The commercial mortgage credit is either provided by the institution that held those mortgages on their balance sheet or by those that would originate loans with the purpose of using the loans as guarantee for the issuance of new commercial mortgage-backed securities (CMBS).


            If we talk about the benefits included in investing in direct mortgages, we would come up with number of advantages. While making investment in direct mortgages, the company can retain its ownership of its business and premises. The company would be able to generate substantial capital gain. Making investment in direct mortgages considered as a good option of realizing capital growth in a long term period.

On the other hand, Commercial mortgages (CMBS) are not considered as subject to rental fluctuations of properties giving the company more stable business planning environment.

Direct mortgage investment normally offers comparatively lower interest rates than other overdrafts /unsecured loans and as an option, it can also be fixed, in a way that it can help the company more accurately manage and forecast its financial statements. Mortgage interest payments are tax deductible, hence the company can enjoy the benefits of tax shields which may help reducing the company’s annual tax expenses.

It also help in improving cash flows of the company. Since, the mortgages spread over a long term period, which helps the company to continue focusing on its core business, its profit and loss and cash flows.


                If we talk about the costs related to investing in direct mortgages, we would come up with number of costs. The first and foremost disadvantage is that the company would be running with massive amount of debt over a long term period. The other major shortcoming of investing in mortgages is that in case of non-payment of mortgage repayment, it will be difficult for the company to own its property.......................

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