I didn't read this whole thread, only glanced on the way down. I have been a broker, a Principal Broker and operated two lending companies one a Mortgage Broker Business and one a Correspondent Lender in the state of Florida.
The Department of Financial Regulation supervises the broker and lender license for real property for the state. The chapter dealing with lending and brokering is Chapter 494.
The terminology in the rule is crafted carefully and meant to be a little ambiguous. "Holding oneself out to the public" is you the potential lender taking actions to cause the public to take notice of you. Holding yourself out to the public also means allowing the public to engage you in a unrestricted manner.
A private person can make a loan, within the usury limits, that is not considered a High Cost Loan and be exempt from license. A licensed mortgage broker, working for a licensed mortgage lender or broker company can assist with the origination of said loan provided the proper set of steps, paperwork and procedure are followed which includes application, TILA, GFE and appraisal. We use to do this with private capital we raised.
The property is the residential distinction not the borrowing entity. Just because you lend to an LLC does not mean the loan is commercial. Any 1 to 4 unit is residential, along with all the other typical residential properties. The intent debate is not all that deep and is mostly meaningless. The occupancy status of said property also does not alter the type of loan. Primary Residences in Florida are protected though as evolved through some of the predatory lending rules that have come along.
The Mortgagee can certainly sell the note off in the secondary market. There is no issue there.
The short term maturity can be problematic. Short term lending falls under the regulations of the predatory lending which can be found in the Florida Fair Lending Act. Short term loans are allowed, but have some caveats to them. The fees collected also have some guides to follow. A short term loan in Florida is termed a "Bridge Loan" by the regulations and is any mortgage with a term of less than 18 months. Things like restrictions on prepayment penalty or default interest rates or even Due on Sale clauses are governed by this rule. There is also certain disclosures that must accompany the loan.
A high cost loan must contain the language even for the sale of said loan in the secondary market a phrase similar to the following: "Notice: This is a mortgage subject to the provisions of the Florida Fair Lending Act. Purchasers and assignees of this mortgage could be liable for all claims and defenses with respect to the mortgage which the borrower could assert against the creditor."
Max rate on loans under $500k is 18% and 25% above $500k.
Bill is correct with the IRS overview. That always comes up.
Holding oneself out to the public does not have anything to do with selling the loan in the secondary market. The secondary market transaction is for investment purposes and is not governed by these lending rules. These are for the protection of the common public as debtors. There is no minimum time frame to hold the mortgage prior to selling in the secondary market.
Now, holding the loan out as an investment to the public under a basis of return or yield is a whole other can of worms. You would need proper licensing and would likely get attention from both DOF and FINRA. Simply don't do this.
There is a provision which looks for a pattern of predatory lending and outsourced risk.
There is a proper way to calculate the A.P.R. (Annual Percentage Rate) as per Regulation Z. Generally any charge which is specific to the extension of credit for that certain loan should be included in the calculation. This can include the charges of third party service providers if a borrower is forced to use that party opposed to one of their selection. Point is, it is not simply interest rate and points that can set you over the usury limit. Home Ownership and Equity Protection Act (HOEPA) also defines rules for high cost loans which are also referred to as "Section 32" loans which deal with refinance loans on the Primary Residence. (purchase mortgages are not included in HOEPA)
As to the amount of capital needed to enter into the market. This varies, even in Florida by location. $50k might work in some portions of central, north and southwest Florida but might not be all that great to work with in some places closer to SE Florida.
One terminology distinction, a loan is collateralized by the real property not securitized. Securitization is the act of taking illiquid assets and pooling them to create a security. The do not mean the same thing. A loan is secured by real property but a loan is not securitized until it enters into a security.
The high cost lending calculation is being confused. It is true that interest and fees go into the calculation but not as being mentioned. If the loan has a 7% interest rate with a 6 month maturity, the loan has an APR of 7% not 14%, that is simply the wrong math. The APR will be greater than the interest rate once all of the costs associated with the extension of credit are sum up. If that same loan has 2% in fees those what need to be include over the life of the loan, if the life of the loan is short, the impact of the fees will increase the APR of the loan. So 2% in 6 months is closer to 4%. 2% over 10 years is closer to 0.20%.
There are other things to consider when evaluating high cost loans. In an example, there are cases in Florida body of law which have a lender using the face rate of the note but by the way the capital was distributed to the borrower the usury rate was exceeded. This has happened several times in fix and flip private money loans. A withholding of construction money, a collection of an interest payment at closing, all of these things count against the usury rate.
The state language around the calculation of interest:
"...…any payment or property charged…as an advance…which is in the nature of, and taken into account in the calculation of, interest shall be valued as of date received and shall be spread over the stated term of the loan…for the purpose of determining the rate of interest. The spreading of any such advance…for the purpose of computing the rate of interest shall be calculated by first computing the advance…as a percentage of the total stated amount of such loan….This percentage shall then be divided by the number of years, and fractions thereof, of the loan…according to its stated maturity date, without regard to early maturity in the event of default. The resulting annual percentage rate shall then be added to the stated annual percentage of interest to produce the effective rate of interest for purposes of this chapter.”
In general, this loan at 12.5% with 3.5% in 6 months is usury. That also doesn't include the other fees but the points equal 7% plus the note rate of 12.5% puts you at 19.5%. Usury is not limited to residential or commercial, it is limited by loan amount, so this loan under $500k fails the test.
Usury can be a felony charge. I recommend you take it seriously. At the worst, the note and mortgage can be nullified and unenforceable.
Even further, a bond year is 360, the annual percentage rate by rule of law is 365. The term "annual" generally refers to a year of 365 days and that is what the consumer gets according to the state Attorney General.
The profit on the sale of a loan in the secondary market is not subject to any regulation. Whether you make 1% or 100%, it does not matter.
Prepaid interest is any interest including fees such as broker fee or origination fee or buydown fees along with per diem interest paid at the time of closing. The interest is 'prepaid' or paid before the interest has accrued for use of the funds during the time the funds were possessed by the borrower.