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Hard Money: Beware of the Brokerage "Daisy Chain"

Commercial Real Estate Agent with Matthews Capital Markets NMLS 2415712

December 25, 2006 06:46 PM

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?

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Kaushik Sirkar

Call Realty, Inc. - Chandler, AZ

Analagous to so many other industries....where you can save money by cutting out the, or a, middleman??

Dec 25, 2006 06:51 PM

William J. Archambault, Jr.

The Real Estate Investment Institute - Houston, TX

Good Morning Brian,

This sounds like commercial lending where everyone you talk to thinks they and their best friend are entitled to a point each.

2:46 am! When do you sleep?

Bill

William J Archambault Jr

The Real

Estate Investment Institute

http://www.reii.org

Dec 25, 2006 11:40 PM

George Souto

George Souto NMLS #65149 FHA, CHFA, VA Mortgages - Middletown, CT

Your Connecticut Mortgage Expert

Brain, thank you for all these Posts on hard money, they are really making it easier for me to come to a better understanding of this part of the industry.

Dec 26, 2006 01:14 AM

Brian Brady

Matthews Capital Markets - Tampa, FL

858-699-4590

Kaushik: Middlemen are important and cost effective when the add value. Good insight.

Bill: Commercial lending is the epitome of this. We worked on a loan a few years ago for a chain of gas stations in Baja. The originator had 8 points in the deal. When questioned about the need for 8 points (on a $ 12 million deal), He explained that he had, ah...expenses. It turns out that he was greasing 3-4 sources along the way. Obviously, the ultimate investor wasn't going to finance 8% of the loan in fees. We offered the loan with two points; the loan never funded.

George: Glad you're enjoying them. I'll bet you are ready when one comes your way now.

Dec 26, 2006 01:51 AM

Carole Cohen

Howard Hanna Cleveland City Office - Cleveland, OH

Realtor, ePRO

This is excellent. I have a question to add, from a Realtor® perspective. When my client comes to me (or someone comes to me who winds up being a client) and they have already decided on a mortgage lender and they do not take the steps to shop around, that is their perrogative; sometimes the lenders in question are people I have not heard of. I check with lenders I respect, sometimes they still have not heard of them. Without making this War and Peace, are the above points questions I should be asking of lenders with whom I am not familiar? Or are there only certain types of deals where this would be true. In other words, if it's a conventional loan I can ASSume the lender is not really shopping the loan around to private investors? Sorry if this is basic but I sometimes think I need a list of ten questions to ask lenders that aren't the normal ones. Brian you can write that list for me on my new blog lolol

Dec 26, 2006 03:27 AM

John Klassen

M & T Bank - Kingston, NY

Hard money is rife with middlemen. It seems many hands are seeking few pockets. I have culitivated a few contacs of my own for this type of lending. I know what they have an appetite for and can find deals to meet their income need.

Excellent post.

Dec 26, 2006 04:49 AM

John:

You should talk to George Souto. He's learning a bit about hard money and will one day need someone like you (or me). Your resources will be much more apt to fund loans in CT than mine. I'm glad you posted this. The originators who know hard money need each other to collaborate (as you know)

Dec 26, 2006 05:23 AM

Jon Ernest

Spotlight Realty - Brookline, MA

Moving on up eh?

Dec 26, 2006 06:56 AM

Anonymous

Not up, Jon, just across. I'm glad Greg mentioned Active Rain in that post.

Dec 26, 2006 07:23 AM

Eddy Martinez

Nationwide Funding Group - Highland Park, CA

Brian i hope you had a great xmas with you and your family. The most a hard money lender tried to charge me was 4 points to do a loan through them.

Dec 26, 2006 08:00 AM

Betsy Locke

Cash Now Realty - Charlotte, NC

Brian, thank you for posting this information. I am asked on occasion where to go for those hard to finance deals and I will direct them your way.

Dec 26, 2006 08:23 AM

Jason Price

Mortgage Financial Group, Inc (NMLS 219650) - Tavares, FL

The Mortgage Rider

Brian, I know this is off topic to the main post, but going to your comment on commercial and fees charged... I am working a potentially large commercial transaction. The lender that I am considering placing the loan with works the way you do with the hard money. They set the fee and split it with the broker. I feel more comfortable doing business with a lender like this, then with one that says charge what you want and we will tack it on to our fee. There is no consideration given to the client in cases like this. Thanks again for the Hard Money posts. Hope you had a Happy Holiday.

Dec 26, 2006 02:42 PM

Hard Money: Beware of the Brokerage "Daisy Chain"

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