Hard Money - It Doesn't Have to Be So Hard

Hard Money - It Doesn't Have to Be So Hard

Dear Alt-funding List Member:

In my 12 years of working with loan brokers on private money transactions, one of the most significant difficulties I encounter has always been simply making our process understood—in other words, explaining the sorts of information, timelines and expectations that are suitable and necessary in a private money transaction.  It seems that brokers unfamiliar with private money tend to fall into one of three traps: (1) They are intimidated by the idea of the process, and so simply don’t proceed; (2) They come into the process exactly as they would come into a conventional transaction; or (3) They think that since it’s private money, there are no rules and recklessness is acceptable.  All three of these mindsets are equally disastrous to carrying a private money loan through to its conclusion, and merely result in wasted time and effort.

The goal of any private money loan process should be efficiency.  In other words, the goal should be to either close the loan or get to a “No” as quickly and painlessly as possible.  It’s all about a simple and streamlined exchange of information in definite stages.

Over the years, I have worked out a very simple system that has been proven to be highly efficient.  Our underwriting process works as follows:

Step 1

Broker submits a summary of the loan scenario to Fairfield.  This may be done via phone, fax, e-mail, or on-line submission form.  I highly recommend that brokers consider using the online submission form on our website, as it is designed to ensure that the necessary information is provided.  The online form is at the following link:  http://www.privatemoneysource.com/loanproposal.php

If the scenario is not one that Fairfield can act on, we will tell you right away and the process will be terminated.

Inefficiency traps

(1a) If a broker submits an incomplete summary we will have to go back and forth for a while until a full summary is obtained.

(1b) Some brokers choose to skip this step altogether and jump straight to step 3.  This has almost always proven to be a complete waste of time and resources.

Step 2

Having obtained a complete summary, a Loan Coordinator for Fairfield will provide a ballpark quote regarding rate, fees, term, and loan conditions.  The broker shall then take this information to the borrower, discuss and explain it, and make sure that it is acceptable to the borrower.  If it is not acceptable to the borrower, then the process is terminated.

Inefficiency traps

(2a) Many brokers, it seems, are reluctant to approach borrowers with the facts of a private money loan.  Apparently they are hoping the borrower won’t notice the rate and fees, or are hoping to have them far into the process so it will be difficult to back out.  This is a huge mistake.  If the borrower isn’t fully on-board from early on, most likely a great deal of time and energy will be wasted.


Step 3

The broker shall contact Fairfield to say that the loan is a go.  At that point the Loan Coordinator will provide the broker with a list of items need in order to process the loan request.  The broker shall collect the appropriate items and overnight mail these to Fairfield.

Inefficiency traps

(3a) If the broker fails to get appropriate checklist of needed items, they will most likely submit items that are not required and fail to submit certain items that are required.  This is a waste of time, copy paper, and postage (time being the most precious and notable resource wasted).

(3b) If the broker faxes the packet, it will not be of suitable quality for processing the request.  A single image file containing the packet may be e-mailed, but generally I have found that this is problematic in one respect or another and leads to a loss of time.

Step 4

Fairfield will generally review a file submission within 48 hours.  If details come out that are problematic, additional information or supporting documentation may be requested at this point.  If the loan proves not to be doable based on a complete review of the file, the loan process is terminated at this point.  (Generally this would be the case if the documentation did not support the concept initially submitted in step 1.)

Step 5

Fairfield will ask for a refundable deposit (the amount to be determined by various practical aspects of the loan) and a loan agreement letter will be drafted.

Step 6

Upon receiving the deposit and a signed copy of the letter, Fairfield will make an appointment to personally inspect the property.

Step 7

Fairfield performs an on-site inspection of the property (and visits various comparable properties).  This is generally the final step in the underwriting process.  It is rare that a loan is terminated at this point because the process leading up to this point has been rigorous and complete.  Termination is only likely to occur if there is a notable discrepancy between what could be noted on paper and with photos regarding the subject property and the comps and what could be seen in person.  (This occurs maybe 5% of the time.)

At this point, the underwriting is complete and the loan can generally be closed within 1 to 5 working days.

If you would like to discuss private money loans further or run a particular scenario by us, contact Clay via phone at 503-348-7011 (or 800-510-2120 out of area), or e-mail him at spark@teleport.com. Otherwise, if you would like to get a better feel for our company and the types of programs we do, please browse our web site at http://www.privatemoneysource.com.

Clay Sparkman
Vice President
Fairfield Financial Services, Inc
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