Mortgage Broker's Axes of Specialization: Residential, Commercial & Private

Post date: Apr 25, 2014 3:56:38 PM

Abstract:

The global mortgage broker industry including is growing at an ever increasing pace. With the advent of technology, awareness by the mortgage consumer and marketing efforts of mortgage broker industry members, more and more mortgage originations are being done by mortgage brokers. Historically, mortgage brokers assisted real estate property owners with mortgage transactions primarily for personal residences. As the mortgage brokerage industry evolved and as greater numbers of mortgage brokers entered the industry, some mortgage brokers applied their expertise in non-residential mortgage transactions (commercial) towards brokering of commercial mortgage transactions. As the mortgage brokerage industry further evolves, a new specialization (in addition to the traditional residential and commercial) has emerged: private mortgage origination.

Private mortgage transactions are those where mortgage brokers provide real estate owners with non-traditional sources of capital, namely private individuals or private corporations (non-institutional, non-syndicated). Specifically:

• The private equity mortgage industry group consists of individuals and organizations that trade in what is classified as digital and non-digital, non-bank, non-institutional, non-syndicated, non-regulated or regulatory exempt, free trading securities and related financial instruments also known as Peer-to-Peer (P2P)/Private/Crypto/Secret/Shadow securities and related financial instruments, secured by real estate
• Capital seekers, Borrowers, Investors or Lenders who trade in private equity mortgage instruments are typically private individuals or organizations classified as: non-bank, non-institutional, non-syndicated, non-regulated or regulatory exempt and free trading; also known as Peer-to-Peer (P2P)/Private/Crypto/Secret/Shadow entities.
• Brokers (middle-persons) are classified as credit intermediaries and depending on the jurisdiction, may be either regulated or non-regulated by government or government appointed industry.

When trading in private mortgage transactions, the legal obligations of mortgage brokers to their mortgage customers are entirely different than those legal obligations when sourcing capital from non-private sources. How a mortgage broker advertises themselves and whom they act for: private mortgage lender or customer, are two examples of the distinctions. Further, private mortgage transactions may be of higher risk to both the mortgage borrower and the mortgage lender because often, but not always, private mortgage borrowers may have a higher propensity to fall into a state of default. Moreover, some private mortgage lenders have efficient systems in place to deploy capital very quickly and may work in collaboration with qualified mortgage brokers to generate premium lender yields through expedited mortgage funding. Expedited mortgage funding capitalizes on the principle of "time value of money" and enables private mortgage lenders, mortgage brokers or both to earn greater yields of return by advancing funds to mortgage borrowers faster than non-private mortgage lenders. Finally, private mortgage transactions are such that there is opportunity for any participant to be dishonest to the other participants. There are examples where mortgage brokers work in collusion with borrowers and take legally unconscionable advantage of private mortgage lenders. There are other examples where private mortgage lenders and mortgage brokers work in a manner that takes legally unconscionable advantage of a borrower.

This report looks at the traditional residential and commercial mortgage specializations and analyzes the appearance, evolution and necessity for a third axes of specialty within the mortgage brokerage industry: private mortgage. The report further discusses the failure of professional and regulatory bodies to address the need of a higher standard of education, training and testing for those mortgage brokers who seek to trade in private mortgages.

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