Note-on-Note Financing: How are HMLs Hypothecating Paper with Bank Lines?

I know a local hard money lender who is using a pretty awesome strategy, and I’m trying to figure out how he actually pulls it off.

Basically, he lends his money out to flippers at 11% and 2 points. Once the deal is done, he takes that loan to his bank, and they hypothecate the loan / they lend him money against the note at 7%.

So he gets his cash right back to go fund the next deal, keeps the 2 upfront points, and pockets the 4% spread every month on the bank's money. It’s a genius way to scale without running out of cash.

I get the basic idea, but I have no clue how to actually set this up in the real world. Has anyone here done this?

* What kind of banks actually do this? Local community banks? Credit unions?

* Who do you even talk to at the bank to pitch this?

* What do they need to see from you? Do you need a massive net worth or years of lending experience before they'll even talk to you?

* How much of the loan do they actually cover? I'm assuming they don't fund 100% of the note, so how much of your own cash gets left in the deal?

If anyone has moved from just lending their own cash to leveraging bank money like this, I’d love to hear how you got started.