Broker Risk Assessment
“The Mortgage Broker Risk Assessment Is A Key Element Of Successful
Private Mortgage Lending”
Today I want to talk about how an experienced mortgage broker can help private lenders and investors manage risk and preserve their capital in the process.
As private mortgage brokers, we are continually completing risk assessments on deals for financing and placing the deals through one or more of our private mortgage lenders.
And in a perfect world, all the payments are made on time once the mortgage is funded and there never is any issue with the borrower right through to and including the repayment of the mortgage in full.
But unfortunately we do not live and work in a perfect world and sometimes, despite our best efforts, there can be issues and challenges with a private real estate loan or mortgage that’s been put into place.
In a perfect world, we try to avoid foreclosures and collection actions as much as possible, and for the most part we are highly successful in this regard.
But when problems with repayment do occur, the conservation of capital comes right back to the risk assessment.
What that means is that we are always looking to fund deals in liquid markets.
So for instance, larger urban cities of one million people or larger will always provide a market for liquidation.
Where liquidity is lower due to factors such as smaller market size, we compensate for that through the loan to value that can be provided.
An example of an unexpected default scenario is in the case of a divorce where there is lots of equity in the property, but both sides are at odds with each other and no one is making the mortgage payments.
When a default does occur, in many cases the mortgage broker will do all the coordination related to repayment, relying on the strength of his or her risk assessment to either facilitate getting the borrower to get the mortgage back on track, or facilitate the foreclosure process.
In either event, the worst case scenario for the lender is that they may not get their capital back in the initial time period outlined in the terms of mortgage, but they will get all their money back in time due to the equity in the property and the liquidity in the market.
A proper risk assessment will allow broker and lender to preserve capital regardless of circumstance due to the legal rights afforded by mortgage security laws.
As I mentioned earlier, there may be some time inconvenience in getting capital and the required return back, but within a matter of months capital will be returned to the borrower.
As a mortgage broker, I work closely with each of my private mortgage lenders to understand their lending criteria and risk tolerance so that any mortgage they enter into has a risk assessment that properly matches with their lending goals and risk preferences.
If you would like to learn more about how we conserve lender capital through mortgage risk assessment, then I suggest that you give me a call so we can have a discussion and get all your questions answered in the process.
Click Here To Speak With Toronto Mortgage Broker Joe Walsh