(go to previous page) (go to beginning)What to do
When considering if a loan is for a business purpose, loan originators should get as much detail and documentation as possible from the borrowers. A full explanation of loan purpose -- not a vague, meaningless statement -- is extremely important. From an underwriting standpoint, written statements by borrowers are the most helpful. These statements should be in the borrowers' own words and, preferably, handwritten.
From there, loan originators should get whatever documents seem reasonable to support the stated purpose. If the borrower is buying business equipment, ask for a copy of the invoice or bill of sale. If the loan proceeds will go toward the purchase of a business or a rental property, get the purchase contract. If the borrower is paying off business debt, document to whom the proceeds will be paid and how it's related to the borrower's business. The best-documented loan files are the ones that will stand up against civil litigation and regulatory oversight.
In addition, brokers and originators should work with lenders that show high regard for compliance. Ask questions about lenders' compliance procedures and if account executives and support staff such as processors and underwriters receive compliance training.
This is especially critical when working with private lenders, many of which are small businesses that may not keep up with current regulations. Ask them if they affiliate with trade associations that provide compliance education to their membership. As laws change and new regulations take effect, staying compliant as a lender becomes harder. You want to know you're working with business professionals who obey the law and who have policies and procedures to protect themselves -- and you -- from unwarranted lawsuits and regulatory complaints.
For brokers and originators, what once was simple has become complex. Our world and our industry have been turned upside down in the past three years. The professionals who remain must dedicate themselves to good ethics and high standards. Failure to do so puts your business and the entire industry at risk.
Lorene Randich has more than 20 years' real estate and lending experience and currently manages the loan production department at Redwood Mortgage, a California-based private mortgage lender.
Redwood Mortgage funds residential investment properties and most types of commercial properties through company-controlled mortgage pools. Reach her at firstname.lastname@example.org.
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