Over the past 18 months or so, maybe longer, the mortgage origination industry has seen significant change. Most of our competition is gone, but so are the programs and lenders that provided so much of the money homeowners and homebuyers needed. With those programs gone, we originators are left to re-tool our kit and get out there and keep originating - or quit, I guess.

For me, when it came to re-tooling, I tried everything, and as I became comfortable - there was change. Whether the sources dried up, or underwriting guidelines tightened - whatever it was it seemed like I was constantly re-tooling - and my volume of production slipped by 80%! Because I have been doing this since the late 80’s - I simply had to find a new niche, a new way to grow my business and support my family. What was I going to do?!

When I started in this business, back with thermal paper fax machines (anybody remember those?!), there were really only 2 kinds of loan programs, government or Savings and Loan money. I stayed away from the government stuff, heard it was too hard and took too long and the government limited origination fees to just 1%, so I stayed with the S&L stuff. Now, with S&L’s gone and WallStreet money still not back yet - seems like the old days are here again - with the major focus on FHA loans!

I have seen statistics that expectations for FHA are in the range of growth near 1000% - seems as thought this time, I am not going to miss this wave! So, I read all I could, I even purchased some great training and reference manuals to ensure my understanding - and then I went out to originate. Although the learning curve was steep, I am now back to production levels I haven’t seen since the refinance boom of 5-7years ago. Although the numbers are similar, the revenue is not! Yes, it is true that origination fees are limited, but to encourage the use of these products, seems that YSP (yield spread premium) is what will fuel the economics of this new wave of FHA loan production.

Don’t miss it this time, learn all you can - the guidelines are strict - but with the millions of homeowners needing help our of those payment option arm, and high rate subprime loans pending their next adjustment - there is quite a demand for our services. Remember, there will always be a need for home loans, we as mortgage professionals just need to be ahead of the curve and ride the different waves of the market to serve our clients and earn our living - don’t quit, just do your homework, and ride this FHA wave!

Anyone who is in this business and is not making FHA loans, should learn how to get yourself or your company FHA approved.

To learn how, Download this: How to Get a FHA License

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Traditional bank and institutional lending has become outdated in some respects and does not always meet the needs of potential commercial customers. Private investor funding has filled many of the gaps while making investing easier and profitable for all parties involved. Although private funding is not actually lending by definition it is still a highly viable alternative.

The typical traditional bank loans take 3 to 6 months to close. The obvious constraint is if your deal needs to close before 3 months or if the seller is anxious to close in a fast time frame. Private funding typically takes 30-90 days to close and the right mix of information, opportunity and right-time-right-place has seen private deals close in a manner of days!

Most commercial lenders have very specific guidelines on documentation of the source of income or proof of asset ownership. Obtaining these documents from the current owner(s) is a big challenge if not impossible. Tax returns and additional personal information are sought but few are willing to open up their finances to just anyone. Private investors tend not to look at past performance of the property but seek a good analysis of what the future potential is. Be prepared with a sound business plan!

Many borrowers cant qualify for traditional commercial loans if they have existing high business expenses. Again, existing financials need to be examined by the bank to determine if prior performance indicates worthiness for the loan. This time its your financials under the microscope. This type of information is useful in proving yourself to private investors but not required.

Special business properties such as mobile home parks, restaurant /bars, cash businesses, new development construction projects, nursing homes, assisted living centers, etc. may be outside of the traditional lenders interest. The reasons differ but are often related to the perceived risk or lack of knowledge about the type of investment. Again, private investors are more interested in your plan and its soundness rather than the category of property.

Relative short balloon payments on special purpose business loans are fairly common with traditional loans, some due in as little a 3 years. If your business plan does not specifically show how returns on the profitability of the property will support the balloon payment the loan is often denied. Private funding may also have balloon payments but you can always seek a different structure that fits your needs and plan rather than trying to plug your plan into an institutions way of doing things.

Assumability of the loan is not often offered with commercial loans. If your plan for the property includes later selling it for a profit you need to consider how potential buyers will finance the purchase from you. If you cannot transfer the loan to a qualified buyer you will be at the mercy of them obtaining a loan from an institution and meeting all of their requirements. This is time consuming and costly for the borrower creating a delay in you moving on. Conversely, private funding can often be structured so that you may transfer your existing agreement to another without any of the constraints.

Banks and lending institutions often monitor their investments by requiring ongoing financial reporting requirements. Although they are not a partner in your venture they behave like they are. Until you break free from the loan this monitoring relationship will continue. Private funding investors may also require periodic financial reports but as long as the agreed terms of the funding are being met they may have little interest.

Some institutional lenders still require the borrower to live in the same state as the property. In todays realm the reasons for this requirement are lost. Legal issues may be a bit easier to deal with because of the requirement but not enough to limit the borrowers to properties in their own state.

There are many more differences between traditional loans and private funding. The differences usually favor the non-traditional private funding world. You may pay slight more for private funding overall but if you cant qualify for a traditional loan, or the timing will not work you should not even consider cost when comparing the two options.

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If you are a lending investor, it is a big risk to lend money from those who you don’t really know. It is your business security measure to learn about the person whom you will lend money.

Usually, lending investor has a lot of evaluation process before they approve your loan. You should undergo to different evaluation, and aside from the evaluation they will ask you to present proof of property such as car registration, land title and many more. Some require you to have a guarantor, just in case that you fail to pay your dues, they will have some to pressure to help you or will pay the amount of money you borrow.

This process should be strictly implemented, remember you are lending money to those people whom you have met for the first time. They should pass all the requirements needed before approving their loan.

One of the best methods in evaluating the applicants is through background checks. You should learn the true identity of the applicant. In background checks you can have different records such as criminal record, court record, employment history and some property records if any.

In background checks you can identify those who are fraud and who has bad image in terms of borrowing money. Of course you don’t want to be scammed by an individual and lose money; it might lead your business to closure and bankruptcy that most of the lending investor afraid of. Better to conduct background checks before lending money and as a security measure for your business.

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