A Hard Money Guide- Beware of the Daisy Chain

Principals or agents?  What's the difference?

Private mortgage lenders are typically high net-worth individuals or pension funds.  They are principals or people with money.  Sometimes those principals delegate certain loan origination functions to loan brokers (who are agents).  Some of the common functions we perform for our private mortgage investors are:  due diligence, loan structuring, financial analysis of a borrower,  valuation of the subject property, identifying an ability to repay the loan, and determining the credit-worthiness of a borrower.

How many agents in a private mortgage loan transaction are too many?   I think that question can be answered by asking another question; what value does the agent bring to a transaction?

Private mortgage transactions are  expensive money relative to the conventional loan products out there.  The reason for that is that the market for private money is far smaller than conventional loans.  Loan brokers who specialize in this niche spend months cultivating an investor before the loan is made.  A loan broker will show an investor a number of loan transactions before finding one that is suitable for their risk tolerance.  The transaction gets more expensive when more than two brokerages are involved.

We share our brokerage commissions with originating loan brokers.  Let me explain that for you.  If a loan broker calls us with an inquiry, we are able to act quickly upon it.  Two reasons why loan brokers use us as a source are:  (1) we have a reputation with investors for offering them legally compliant, sound loan offerings.  (2) We have a large number of investors at our disposal.

Does a consumer get a "better" deal by coming to us directly?  No, they don't.  We still charge the same fee for  our services, we just elect to share it with the originating broker for certain loan origination tasks they perform. The Real Estate Settlement Procedures Act (RESPA) requires that a test be met before a loan broker can earn a fee (or a portion of the fee).    We follow RESPA to the letter of the law.

If you've applied for a loan from a loan broker in California and she is merely passing on the information to another broker, they really aren't adding value to the transaction just costs.  That is the last thing a borrower needs when facing foreclosure or needs quick money.

SOURCE: America's Most Opinionated Mortgage Broker