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   ARTICLE   |   From Scotsman Guide Residential Edition   |   April 2005

Direct Communication Becomes Vital in Hard-money Lending

With the residential-refinance boom getting smaller and smaller in the rear-view mirror, many mortgage brokers are looking for ways to expand their services. Some are finding that hard-money lending presents a lucrative option that many brokers have not yet discovered. One concept critical to any broker’s success in hard money — whether it be in residential or commercial — is the following:

Allow the lender to work directly with your client.

It often is difficult for residential-oriented mortgage brokers to wrap their arms around this concept. Many are used to handling the entire loan process for the borrower, and there often is no need for communication between the borrower and lender. Hard-money lending is a different business altogether, and brokers benefit greatly from allowing a free communication flow between borrowers and lenders. In most cases, hard-money lenders won’t even consider a transaction without direct contact with borrowers, and for good reason.

It is necessary to understand specifics such as property information, borrower qualification and motivation for a hard-money loan to be a win-win solution. Although these issues basically are straightforward in conforming residential lending, hard-money lending has innumerable variables that can have dramatic impacts on a transaction’s success.

Critical points are lost in the grapevine between lenders and borrowers, similar to the “telephone game” most of us played when we were young. This is true especially when dealing with the complex issues present in hard-money lending. Each hard-money deal has its own set of moving parts, and it is important to understand each. The most crucial piece of the puzzle, and the primary reason a borrower will accept a hard-money loan, is motivation.

For a hard-money deal to be successful, the lender must understand the borrower’s motivations. This information is necessary for the lender to create a specific solution to meet the borrower’s needs. These issues can be sensitive in hard-money lending and should be discussed with lenders and brokers in-depth to structure a successful solution.

The lender also must understand the borrower’s motivational level. No one likes paying hard-money pricing. But if there is sufficient motivation and no other option, the deal’s probability of closing increases dramatically. These motivational details must be explored deeply and be understood by the lender as completely as possible.

Direct communication also can alleviate ethical concerns. Hard-money rates and terms can have a dramatic positive impact on a borrower’s situation when implemented correctly. However, borrowers who agree to hard-money loans in which lenders don’t have a great grasp on the situation can find their position more tenuous than before the loans were closed. This does not dismiss the fact that some hard-money lenders offer proposals that are not in clients’ best interests. It is the broker’s responsibility to ensure that the hard-money lender proposes a deal that meets each borrower’s specific needs.

Another valuable benefit of allowing hard-money clients to work directly with lenders is accelerated closing times. Again, as in the “telephone game” reference, it takes more time for the information to travel between the borrower and lender with a broker transmitting the data — not to mention the miscommunications that occur along the way. Removing that extra step will improve the deal’s closing speed, which often is essential for hard-money clients.

It is important to understand that even though direct communication has a positive effect on deal-structuring, ethics and closing speed, brokers should detach themselves from hard-money-loan transactions. The best solution for a client is one in which a borrower, broker and lender can work together.

Although the approach described in this article is foreign to some mortgage brokers, there are virtually unlimited opportunities to close hard-money transactions when this philosophy is accepted and implemented. So go through your old deals that never found a home, actively seek hard-money clients and build relationships with hard-money lenders. Many top brokers in the industry are doing just that. Put yourself in that elite class and start closing hard-money deals today.


 


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