• Brokers and loan originators can’t be compensated based on the loan’s interest rate or other terms.
• Brokers and originators cannot receive payments directly from a consumer, if they also receive compensation from the lender or another person.

“That will force many originators to lean heavily on lender-paid options instead of borrower-paid options. That will shift the cost up for consumers,” said Bill Kidwell, a loan originator and founder of Impact Mortgage Management Advocacy and Advisor Group (IMMAAG).

• Brokers and officers are forbidden from “steering” a consumer to a lender offering less favorable terms in order to increase the compensation.
• To prevent steering, brokers must present consumers with all types of loans in which the consumer expresses an interest, say both a fixed rate loan (FRM) and adjustable rate mortgage (ARM).
• Loan options presented to consumers must include the lowest interest rate for which the consumer qualifies; the lowest points and origination fees, and the lowest qualifying rate for a loan that has no risky features, including a prepayment penalty, negative amortization, or a balloon payment in the first seven years.
• Brokers can be compensated based only on a fixed percentage of the loan amount.

That could also create problems by influencing brokers and loan originators to steer borrowers to larger loans than they can really afford.

Broderick Perkins, MortgageMatch.com

Therefore, the investor needs a network of contacts that bring the investor and the borrower together. The best legal way is with a Licensed Mortgage Broker in the state the investor wants to lend in. The investor simply makes contact with a reputable licensed mortgage broker who is familiar with private mortgage lending. The private mortgage investor tells the broker they would be interested in funding some of the broker’s mortgages that need private money.

However, this investor will not be the only private mortgage lender the broker works with. Consequently, building a trusting and friendly relationship with the mortgage broker can land the investor more mortgage deals than would otherwise be the case.  Building a relationship with three or four Licensed Mortgage Brokers who are experienced in the private mortgage lending industry would be best for the private mortgage investor. All the brokers will be happy to present the investor with mortgage lending opportunities.

Most mortgage brokers are trying to help the borrower obtain a fair mortgage for their circumstances. When first starting out with a mortgage broker the private mortgage lender should be flexible about what rate to charge and the terms on any mortgage loan the broker presents. The private mortgage investor should listen to the broker and ask for their suggestions on what rate and terms to set to be fair to all parties. The broker understands that it is a private mortgage loan and the customer does not qualify for a bank loan. The broker usually understands the market for each deal. Going along with the broker’s suggestion about rate and terms may be a good idea early in the relationship between the broker and investor even if the investor wanted a little higher rate. Remember, the investor is in the relationship building stage. Later, when the private mortgage lender and the mortgage broker are more comfortable with each other, negotiating a higher rate of return for the lender will be much easier.

The mortgage broker usually has a half dozen or more private mortgage lenders he/she can broker a deal to. Each private mortgage lender has their favorite type of deal. The private lender should try to develop a comfortable lending niche. For example, if a particular private lender is the only private mortgage lender that consistently loans money on homes valued under a given amount, then it is likely the broker will start giving that investor the first exclusive look at funding those loans.

Moreover, occasionally having lunch together at a favorite restaurant can help build good relations between the broker and the investor. Lunch conversations can be about how the mortgage broker presents mortgage deals to his various private mortgage lenders or about what kind of mortgage deals the private lender is interested in funding and what kind of mortgage deals the broker would like to see funded. Conversations can also be about off topic subjects of common interest, such as sports, history or computers. Of course, building a business relationship with someone you personally like is much easier than with someone you think is a big jerk. The private mortgage lender should find a mortgage broker they respect professionally and get along personally.

Finding the right professional mortgage broker may be the answer to your goals.

Why are mortgage brokers a great source for private mortgage investors and borrowers?  Simply put, mortgage brokers are the professionals that connect borrowers to the appropriate money source for their needs.  Professional and ethical mortgage brokers know how to make a good match. There can be a number of combinations of professionals to make the transaction work for both the private mortgage investor and the borrower.  An experienced mortgage broker should know what combinations of professionals is best for each transaction.  The combinations can be made up of a title company, a surveyor, appraiser, attorney, inspector, contractor, county officials, a flood certification company, hazard insurance company.  All of these entities will work with the professional mortgage broker for a smooth transaction that is right for the private mortgage investor and borrower.