Module 4 - Working with Lender

Mortgage Agents and Private Lending

• Mortgage agents should create a comprehensive plan to consider the needs and circumstances of both borrowers and investors.

Mortgage Disclosure Statements

• A Mortgage Broker Disclosure Statement is required for brokered transactions funded by investors.

Mortgage Forms

• Form 2 - Renewal Form should be used when renewing a mortgage.

Documenting Private Lending Conversations

• Mortgage agents should document and keep on file all private lending borrower conversations.

Investor Considerations

• Investors consider it vital to determine whether to participate in a mortgage deal based on risk, return, and liquidity.

Formalizing Mortgages

• A Commitment Letter should be sent to formalize the mortgage.

Private Investors

• Private investors are individuals or entities investing in mortgage deals.

Syndicated Mortgages

• A syndicated mortgage is a mortgage funded by multiple investors.

Risk in Private Lending

• Credit risk refers to the risk of borrower default.
• Collateral risk refers to the risk of loss incurred if the property value is insufficient to cover the loan.
• Market risk primarily involves the risk of interest rate changes affecting the investment.
• One factor that may pose a risk in collateral risk is property value fluctuations.

Best Practices

• A best practice when dealing with private lenders and investors is to evaluate their risk profile, investment knowledge, and time frames for their funds.

Investor/Lender Suitability

• Evaluating an individual lender/investor's risk profile and knowledge of investments is crucial in determining suitability.

Mortgage Broker Recommendations

• Mortgage brokers should inform their recommendations based on best practices, considering the investor's risk profile, time frames, and investment knowledge.

Mortgage Details

• A key element to consider when analyzing mortgage details is the source of funds for a lender/investor.

Executive Summary

• An executive summary for investors should provide a concise overview of the investment opportunity.

FSRA Requirements

• The FSRA emphasizes the importance of preparing a comprehensive project plan when submitting a project for financing.

Verifying Lender/Investor Credentials

• Mortgage professionals should check CRA tax filings and bank statements of a potential lender/investor to verify their credentials.

Investment Suitability

• A key factor that a private investor should consider when determining suitability of an investment is their risk profile and investment knowledge.

Conflict of Interest

• Disclosing a potential or actual conflict of interest is crucial to maintain transparency and professionalism.

Borrower Assessment

• Assessing the borrower's 'capacity' involves evaluating their ability to repay the loan.
• Assessing the borrower's 'capital' involves evaluating their financial resources and assets.

Exit Strategy

• Disclosing an exit strategy with borrowers is essential to ensure a clear understanding of the loan terms and repayment.

Property Appraisal

• A property appraiser should be experienced in the area where the property is located to ensure an accurate appraisal.

Determining Property Value

• Key factors for determining property value include location, condition, and market data.

Commitment Letters

• A commitment letter promises to lend the borrower the specified amount once conditions are met.
• The main purpose of a commitment letter is to formalize the mortgage agreement.
• A conditional commitment letter is contingent on specific conditions, while a final commitment letter is unconditional.

Internal Rate of Return (IRR)

• The Internal Rate of Return (IRR) is a financial metric used to estimate the profitability of potential investments, considering the time value of money.
• The goal of using the Internal Rate of Return (IRR) is to evaluate investment opportunities and make informed decisions.

Challenges in IRR Calculation

• Younger agents may struggle with preparing the Internal Rate of Return (IRR) due to limited experience.

Working with Distressed Borrowers

• A suitable lender should spend time working with borrowers who are not able to meet mortgage payments, exploring alternatives to foreclosure.

Post-Commitment Letter

• Once a commitment letter is sent, a mortgage professional should follow up with the borrower and investor to finalize the mortgage agreement.

Commitment Letters and Clients

• Discussing commitment letters with clients is essential to ensure a clear understanding of the mortgage terms and conditions.

Test your knowledge about mortgage rank, amount of mortgage advance, and the honesty and integrity requirements for mortgage brokerages, brokers, and agents.