Why do HML charge "points" and not lend 100% LTV?

[Dean Attali]

I've been talking to someone I know who did a few flips over the past few years, and he mentioned he's always looking for people to fund his flips. I have some cash I want to invest so we talked about how I could potentially be his lender for a flip.

I've been researching what typical hard money lending terms are so that I would have a better idea of what to ask/expect from our arrangement.

I have 3 questions about this:

1. Why is it standard practice to charge origination fees/points upfront on the loan? It seems counter productive to me, because the whole point of me lending him money is because he needs the capital to purchase a house and rehab it, so why would I say "here's 100k, but first give me 3k"? For example, if the terms are 10% interest and 3 points (assuming 1 year), why not just say the interest is 13%? I may be misunderstanding how the points work, but more importantly I don't understand why they're needed.

2. Similarly, why is the loan usually between 70%-90% of the home value, why not 100%? The way I see it, the reason he needs my money is because he doesn't have his own to invest in the project, so why is it so common to say "you do need to put in X%"?

3. This doesn't relate to the title of the post, but I was wondering if there are any specific terms that are a good idea to include when lending for a flip. For example, some term that somehow increases/guarantees my return? I was also wondering if, when talking about a flip loan, the LTV value is using the value of the house+rehab in the calculation.

I'd be happy to receive any sort of feedback on these topics. Thanks!