Increasingly, borrowers and lenders with loans in good standing have been reaching agreements on discounted prepayments. In theory, a discounted loan payoff should be straightforward — the borrower simply negotiates a discount with the lender in exchange for early repayment of the loan. In practice, however, discounted payoffs are anything but simple. Multiple-tier debt structures and multiple lenders add layers of complexity. Other complications arise when there are multiple borrower constituents with varying abilities and appetites for repaying the loan. This article explores some of the challenges faced by borrowers seeking a discounted payoff of a performing loan.

WHO IS THE LENDER, AND HAS THE LOAN BEEN SECURITIZED?

A borrower seeking a discounted payoff should first consider the lender’s likely response. Fannie Mae,the world’s largest mortgage investor, for example, typ