|Commercial and Consumer Loans Posted by: Marlena Mar 7 2004, 05:11 AM|
I’m really new to alot of business things, so please bare with me I am interested in opening a mortgage company, brokering loans to finance lenders. I guess they do consumer and commercial loans, but I’d like to know what is the difference between the two? Would they apply to what I’m interested in doing?, and if so, which type of loan would be the best type?
Posted by: loanuniverse Mar 7 2004, 12:07 PM
First let me give you my definitions for consumer loans and for commercial loans:
Consumer loans: are those loans obtained by individuals used for a personal use. Such as the purchase of a home or a car. You could even include a personal loan for a business purpose here if the loan is done within the framework of a consumer loan product. A good example would be using the proceeds from a home equity loan to infuse capital into a business.
Commercial loans: are those loans obtained by both individuals and companies with a business purpose behind it.
I am a little confused as to what it is that you want to do. Do you want to become a broker preparing packages for lending institutions and getting some kind of commission for those referrals?
There is something similar to that in the commercial business, but the services are targeted to small business owners using the ”we can help you get a loan for your business” sales pitch. Normally, a business owner would go to this broker and the broker would make sure that everything that is needed for the lender to make a decision is included in the package. Your fee would be collected from the client. I personally think that there isn’t that much value on the work that is done by these brokers. But a good one will provide insight as to how best present the loan request, and will have the connections with lending officers to make the process smoother.
The consumer loan brokering side is more competitive since it seems that every other realtor considers himself some sort of loan broker. I would not be the best person to go over this type of loan broker, but there is a lot of information about it all over the net. Take into consideration that anything that has to do with consumer lending is highly regulated. While it is possible that you can be a commercial loan broker without a license, a lot of states require a license for being a consumer loan broker.
Your post did confuse me because for a moment I thought that you wanted to become the lender to finance lenders. I also would need to know what do you need the loan for?
Anyway, I hope that the above answered some of your questions, feel free to post another question if it did not.
Posted by: Marlena Mar 7 2004, 06:25 PM
Thanx for your response!
Maybe I don’t know exactly what the true meaning of a broker is, but I just want to open my own mortgage company for people who want to refinance, consolidate debts, cash out, etc., and receive some commissions from these loans. Like a regular mortgage company. The part that’s kinda confusing to me is that I don’t know if I ( my company ) would be the one who actually makes the loans, or if I would get my loans through someone else like a bank, for example. Under the Department of Corporation one must have a finance lenders license to open a mortgage company. Now, I’m not sure exactly what my position would fall under with this license, but I do know that a broker under the finance lenders act must only negotiate loans with only finance lenders, and not credit unions and banks.
I hope I explained it very well. Thanx again!
Posted by: loanuniverse Mar 7 2004, 10:29 PM
The main difference between the broker and the banker is that the broker is a third party between the borrower and the lender, but the banker is the one actually doing the funding.
It is much more difficult to be a banker than it is to become a broker. After all, the broker does not need to do any funding. Mortgage bankers are usually funded with a warehouse line of credit, which is a type of loan that is funded by banks usually.
I don’t know how your particular state regulates these professions, and can not really comment on it. However, I can tell you that there is a lot more money to be made in banking since you are controlling more of the transaction. I can also tell you that in order to make a living out of this you would need a substantial amount of volume since we are talking maybe 1% fees on a typical transaction.
Debt consolidation is an area that has the potential to make you a lot of money, but I think it has lately been overwhelmed by people who take advantage of people on their worst hour of need.
There must be a couple of books about the mortgage banking or mortgage broker industry in your public library, if there aren’t you can always check Amazon for one.
Posted by: Guest Mar 8 2004, 02:50 AM
Okay, now I see the difference! So basically the lender is the banker, correct?
Did you say that the banker would charge a 1% fee to fund the loans? Does that explain how they are making there money? And please correct me if I wrong, do mortgage companies usually make there money ( commissions ) by the closing cost of the loan by the borrower?
Posted by: loanuniverse Mar 8 2004, 10:14 AM
And please correct me if I wrong, do mortgage companies usually make there money ( commissions ) by the closing cost of the loan by the borrower?
They make their money in the closing fees and in the reselling of the mortgage to investors. For example, an investor might be willing to pay 100% of the note’s value if the rate is 5.50%, but might be willing to pay 101% of the note value if the rate is 5.70%. Depending of course on the rate prevailing in the market and the quality of the borrower.
Posted by: Marlena Mar 8 2004, 06:39 PM
Oh I see…… So, say if a person wanted to refinance their house through my mortage company and they would need a loan of $300,000. Me, being the broker, would then go to my lender, who would then fund the loan. Is my company making that $300,000? And when that person makes their monthly mayments, it will be going back to the lender?
Posted by: loanuniverse Mar 8 2004, 08:53 PM
The banker funds the loan, the broker just gets the borrower in touch with a lender. Nobody makes $300,000. Someone will make a $300,000 loan, but that is not really revenue. The payments go to whomever funds the loan. Everything is a bit more complicated that what can be described here. I think you need to read a book on mortgage banking or mortgage brokering.
Posted by: Marlena
Mar 9 2004, 11:54 AM
Oh I see, it’s just kinda confusing because I want to own my own mortgage compnay, but I really don’t know how mortgage companies are making their money. I used to do telemarketing for a mortgage company and the company included the broker/owner, manager, assisstant manager, secretary, etc. and I heard that the manager was making around $15,000 a month. Even if it was $5,000 a month I still don’t understand how he would be getting paid so much, you know what I mean? I mean, I’m sure the company had to be bringing in alot of money in order for the manager, alone, to be getting paid like that.