“Here’s the Borrower’s Name & Phone Number, Call Him/Her. Build Me in for 2 points.”

Lenders of all types including banks, secondary market participants, real estate and loan brokers all have access to private money lending sources as an alternative. When a bank or institutional lending source is unable or unwilling to fund a real estate loan, a mortgage broker who represents private investors will step in to potentially arrange funding using private investor capital. The private investor will fund the loan and the mortgage broker will usually become the loan servicer.

Some states require licensing, and some do not.  Licensing fees and administrative procedures are a method of collecting money for state government coffers.

Most lending practitioners across the entire USA have a professional business strategy.  Individuals hold themselves out as experts and have a fiduciary duty to assist the borrowers in deciding what loan program is in their best interest.  Brokers who engage in loan procurement solicit individuals or entities who request loans, usually secured by equity in real property. The collateral may be residential, commercial, personal property, business opportunities, or a combination.  Most salespersons aspire to become an expert in their field willing and able to display expertise and go the extra mile on daily basis and on demand. Study of real estate, lending, regulation, experience, effective marketing, effective networking, risk taking, and a daily planned action habit are all necessary traits. Leave out one, you are dead-on-arrival in the sales business. Yes, any sales business!

Many hold themselves out to be experts but have little motivation to do an effective or professional job.  Having been in the industry for 45 years and senior to most participants I am astounded at how many profess to have “20 or 30 years of experience in the business” but practically speaking have 1 year repeated 20 or 30 times.  Also, many will rise from retirement for an expressed purpose of passing on a lead for a quick buck but little effort.

When a mortgage broker takes on the job of procuring a loan for a principal, they take on an agency roll as far as collecting the relevant data from the borrower, reviewing, analyzing, then delivering the data to the lender for analysis, approval and funding.  An agent or fiduciary who represents a prospective borrower cannot transfer their agency responsibilities to the broker who represents the lender. The concept of delivering a name and phone number then waiting for a fat check (build me in for 2 points while I sit on my ass and do nothing) is not lawful.

I witness this frequently, Broker “A” procures a prospective loan, transfers the lead to Broker “B”, who then transfers the lead to Broker “C”, who then locates a prospective principal lender willing and capable of funding the loan transaction.  The prospective end broker will set up a file whether digital or paper and proceed to accumulate data, to analyze the transaction for the purpose of submitting a letter of interest (LOI) to the borrower for consideration and/or acceptance.  In many cases the lender who controls the funding is unaware of the daisy chain of brokers looking for a fat paycheck for very little work and little effort.

When the mortgage broker who represents private investors pre-analyzes the loan transaction and expresses interest, he/she will submit an LOI to the prospective borrower. The broker may suddenly be confronted with the undisclosed fact that there are multiple brokers who want a piece of the action (fat commission for little work).  Broker (A) expresses satisfaction about the lender’s interest in making the loan and willingness to submit an LOI to the borrower for consideration. Oh! by the way Mr. Lender, did I mention that I need 2 points, and broker (B) needs 1 point, and of course we could not leave out lonely broker (C) who demands 1 point. No one has ever heard of, nor received any relevant data from any of these bozos although they are all subagents of the borrower and may not be compensated for doing nothing.

This is an outrageous bifurcation of honest dealing.  In my 45 years of operating in this business and consulting third parties who are in the loan business I have never witnessed one of these 4-tier broker to broker transactions that have ever closed as originally represented.  Borrowers are not fooled. They always go elsewhere and avoid this exploitive trap.

Unfortunately, there is a sub-group of folks who churn and clog the system with transactions that were never possible from day one.  They take no time to analyze the viability of the transaction or accumulate industry standard data necessary to make a lending decision.

Throughout life there are multiple subsets of humanity that attempt to get more out of the system than they ever put in.  And, they do not care how much other people’s time that they waste.  They can be classified as freeloaders. Systematically eliminate them from both your personal and your business life entirely. Easy to say, hard to do.

“Build me in for a point” means 100 basis points or 1% of the principal loan balance.  Building in 4 separate parties for 1 point =4% third party loan origination fees before the lender/broker who controls the money even considers adding his/her fee. My favorite is receiving a call from someone that I had never heard of throughout the entire process claiming that he/she was owed a commission and demanded to get paid after the closing and all proceeds were distributed.

There are parasites who live off the backs of productive organism everywhere.

Dan Harkey
Business and Private Money Finance Consultant
Cell 949 533 8315
dan@danharkey.com

This article is intended for educational purposes only and is not a solicitation.

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