Anyone build their own loans to sell?

Question

I'm speaking with a local mortgage lender...and it's basically a small business that packages loans..then sells them to a larger entity that buys them.

As someone who's started a couple companies...I thought to myself...well why don't I just get who they are selling to and package my own loans as I do my own deals...cut out the middle man and save a few thousand dollars on broker fees ect.

Anyone else currently do this? Did I simplify this too much? I'm assuming it's just finding the criteria this BUYER has, then filling out the proper information to sell to them. I close myself using Cash from my new 'mortgage company', but immediately resell the loan to one of these companies.

Bill Gulley · Answer

Yep, it's about that simple, except you don't get a brokerage license, capital requirements, bonded, state registration, vetted with title insurance, accepted as an originator by the mortgage banker/wholesaler out of a cereal box. Probably going to jail if you don't follow the business requirements, being in violation of a string of federal finance laws that govern origination and brokerage of mortgages.

It's a bit of a catch 22 as well. You can't learn the business in a few months. Before any wholesaler will buy from you, you'll need to show expertise and experience, just having notes or money doesn't open the door.

Go work for a broker, in about 5 years and a few million in originations, you can meet the legal requirements and go into business.

It will be cheaper to just pay your broker! :)

Roy N. · Answer

@Matt Maluchnik

You may also find it's a matter of regulation and licensing. I would expect you need to be hold a licence or some form of formal registration/designation to package and sell off notes as a business. You may be able to do one or two as an independent investor ... though I am not certain of that.

@Dion DePaoli or @Bill Gulley would have answers on what you can (or should) and cannot (or should not) attempt.

Don Konipol · Answer

If I understand correctly you want to be a mortgage broker lending on properties that you are also one of the principals in the transaction, as buyer or seller?

Unless you are doing hundreds of financings per year, you will find no expense savings as a "mortgage banker", i.e. one who funds the loan out of his own pocket and then sells the loans in bulk to investors, like Fannie Mae.

As a mortgage broker, you may earn a fee by " brokering" the loan to a mortgage banker. However, there would be conflict of interest considerations with you being a principal in the transaction

If we are speaking about private financing, yes, by bypassing the broker and going directly to the money source you may be able to save all, or some of the brokerage fee.

If you are talking about starting a mortgage brokerage, or mortgage banker operation as full service for transactions of which you are not the principal, then it becomes a general question of what business do you want to be in, where do you want to allocate your time, what skill set and experience do you have, how much capital do you have and are willing to invest, and how much capital can you raise.

Dion DePaoli · Answer

Most all smaller mortgage operations originate loans into an approved Seller who has approval to sell into Fannie, Freddie or Ginnie. So chances are there is more than one middle man between you and the ultimate buyer of the loan. That is how the industry works. You would not have any near term chance of become an approved seller into any of the GSE's. Last time we worked with a group to get Seller approval they were doing north of $100 million per month.

As Bill mentions, getting approval to sell into the approved Seller is also a long haul road as well. In general loans made on warehouse lines have up to six months to clear. If there is a defect in the loan it may not sell at all. To fund being a smaller lender you will need several million dollars plus the experience and know how. You can do it, just not over night.

Anyone build their own loans to sell?

Anyone build their own loans to sell?

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