This topic is mainly applicable to loan originators, including private lending firms and mortgage brokers who want to become a lender. If you’re a real estate investor, you may not find this information to be useful, unless you’re planning to start a private lending business. Some real estate investors are curious about the capital side of private lending since it may affect the pricing for their loans. We’ll cover pricing later on. First, we’ll explain some of the basics.
Loan Originators: Connect with Table Funders
Private Lender Link offers a service to connect private mortgage loan originators with table funding providers, including ones that don’t charge points. Reach out to tell us about your capital needs and preferences.
What is Table Funding?
Table Funding in private and hard money mortgage lending is the use of another person’s or company’s capital to fund a loan at closing. So the lender underwrites and processes the loan, but they don’t need to use their own money to fund the loan. When the loan is ready to close, the capital provider wires the funds into escrow or settlement.
Some feel this is essentially loan brokering, but one of the key differentiators with table funding is the loan originator maintains the relationship and communication with the borrower throughout the loan term. Other terms used to describe table funding include “correspondent lending” and “wholesale lending.”
In most cases, the borrower or broker does not know where the money is coming from. The entity that funds the loan will likely have a generic name which hides the identity of the capital provider. Some loan originators will name themselves as the lender on the loan documents, but they’ll immediately assign the note to the capital provider at closing. This practice is not acceptable to some capital providers, and in some states, it’s prohibited.
California Regulations for Table Funding
In California, loan originators using a Department of Real Estate license must disclose who is actually funding the loan and who will hold the deed of trust. The disclosure forms refer to the loan originator as a “broker” arranging the loan, and the lender is the person or company providing the funds. Therefore, the term “table funding” is not widely used in California. Most loan originators just explain that they have a “trust deed investor” who is funding the loan, but they are still a direct lender. Loan originators who only have a California Finance Lender license, and not a DRE license, must fund the loan using their own balance sheet and they are not permitted to use trust deed investors or other capital providers.
4 Types of Table Funders
There are 4 types of capital providers that table fund private mortgages.
1) Big National Lenders
These companies are very well established with a large retail operation, and they have a huge balance sheet to fund loans in many states throughout the country. Although they originate loans themselves, they partner with smaller lending firms and mortgage brokers to table fund loans through a separate entity. There are not many requirements for these partnerships.
2) Institutional Capital Providers
The second type of table funder is an Institutional Capital Provider backed by Wall Street investment banks or Insurance money. The key difference between the Institutional Capital and the Big National Lenders is these companies only partner with loan originators, and they don’t originate loans themselves or deal directly with borrowers, except when servicing the loan. These firms may also purchase loans after closing, but table funding could be an easier process for all parties involved.
3) High Net Worth Investors (HNWI)
The third type of table funder is an individual investor, also known as a high net worth investor, who lends out their own retirement funds.
4) Family Offices
And finally, the fourth type of table funder is a family office. They tend to be a bit more sophisticated than HNWI’s and may have a loan committee made up of multiple people who manage the family wealth.
How Table Funding is Structured
There are many different ways to structure and price table funded private mortgages. The first consideration is the originator’s cash contribution to the loan. In most cases, the table funder will provide 100% of the loan amount, and the originator does not need to contribute any of their own funds. However, some originators want to invest their money in the loan, say 10%, 20% or even 50%. When a loan originator always invests some of their own funds and does a lot of volume with a table funder, the two parties may form a special purpose vehicle to fund loans together.
The next consideration is the origination fee. In most cases, the originator gets all the origination fees. However, some table funders will charge their own origination fee ranging from one to one and a half points, and others will want to split the total points charged to the borrower 50/50. Some may just charge a flat fee for underwriting and processing.
In addition to origination fees, the loan originator can earn some of the yield spread, anywhere from 50 to 200 basis points. For example, if the borrower pays an interest rate of 9 percent, the originator may get 1% and the table funder gets 8%.
Servicing for Table Funded Loans
The last thing to determine when structuring table funding is who will service the loan. Servicing includes collecting payments, and managing the loan from closing until payoff. The Big National Lenders almost always service the loans they table fund. With the Institutional Capital Providers, most of them want to control the servicing, but we know many that are fine with the originator handling it. Individual investors and family offices don’t typically service their own loans, but they may want it outsourced to a third party servicer.
With all the available capital in the market, the loan originator typically gets to dictate the servicing. If they really want to service the loans themselves, they will only do business with the capital providers that abide by their terms. But the reality is most loan originators have no interest in servicing themselves, so a third party servicer is the most popular solution.
How Does Table Funding Affect the Borrower’s Pricing?
In most cases, the overall pricing for a table funded deal will be the same as if the lender funded the loan using their own balance sheet. Three is so much competition out there for private lending, the loan originators and their capital partners will figure out a structure which will be competitive so they don’t lose deals due to pricing. Table Funding enables loan originators to maintain relationships with their borrowers for a variety of private mortgage needs. For example, if a fix & flip investor has worked exclusively with one local lender and they eventually have a need for a long-term rental loan, a table funding relationship would enable the local lender to close that loan, and the property investor won’t need to seek another lender for the rental financing.
How to Find Table Funding Providers
Private Lender Link offers a service to connect private mortgage loan originators with capital sources. If you’re a loan originator, reach out to tell us about your capital needs and preferences. We’ll introduce you to capital providers that may be a fit. The capital providers pay us a fee.
Zero Point Table Funder
Most companies that offer table funding charge points, but we have a relationship with an investment firm (backed by insurance money) that offers table funding to originators and doesn’t charge any points for loans under $1.5M. They offer bridge, rehab and ground-up construction loans secured by residential investment properties in 13 states: AZ, CA, CO, DC, GA, FL, MA, MO, NC, NJ, SC, TX, VA.
We have relationships with other table funding providers that do charge points and still may be good options for many originators.