Where does the money come from on a bridge loan, points or rebate

Question

I'm looking at backing a two-person brokerage that wants to move most of its volume to investor loans, and I can't get the revenue model straight in my head.

On the conventional side I understand it: the shop gets lender-paid comp at some fixed percentage of the loan, say 1.75 on a $400k purchase, and it can't also charge the borrower origination on the same file. Fine. But every bridge and DSCR term sheet I've been shown has a broker point on it AND the lender's own origination, and one AE told me his rebate schedule pays brokers up to 50 bps on top of whatever the broker charges the borrower directly.

So either those two things sit under different rules or somebody is describing it loosely. Which is it, and if a broker really can collect from both sides on business-purpose paper, what does the annual revenue per originator actually look like once you account for how often these files die?

Rena Expert · Accepted Answer

The two payment channels are separated by Reg Z's loan originator compensation rule, which reaches consumer credit secured by a dwelling. On an owner-occupied conventional purchase, the originator is paid by the lender or by the borrower and can't take both on the same transaction, and lender-paid comp has to be set on terms that don't vary with the loan's interest rate. On a loan made for a business purpose to an entity acquiring or refinancing an investment property, that rule generally doesn't apply, so a broker point plus a lender rebate on the same file is a normal structure. Your state is the part to check before you fund anything, because some states license and regulate brokering on any loan secured by real property regardless of purpose, and a broker fee earned without the required license can be uncollectible. That's a question for a lawyer in the state, not a forum.

On the economics: $400k at 1.75 lender-paid is $7,000 gross. A $1.2M bridge at 1 point borrower-paid plus 50 bps rebate is $18,000 gross. The number that decides whether the pivot works is pull-through. Conventional purchase files that get to a full package close somewhere around 75 to 85 percent. Bridge files die on scope, on as-completed value, on a title issue the seller won't clear, and a realistic planning number is closer to half. Model 24 funded investor files a year per originator, not 40.

The exposure you haven't mentioned is rebate concentration. Private lender rebate schedules are contractual and get repriced when the lender's own capital cost moves, sometimes with a week's notice. If 70 percent of the shop's revenue rides on two lenders' rebates, that's the whole business in someone else's pricing committee.

samantha_ruiz · Answer

One thing that surprised me reading a bridge term sheet: there's no closing disclosure on an entity loan the way there is on my primary. The broker's fee showed up on the title company's settlement statement, and nowhere in the process was there a form making the two fees sit next to each other early. If you're funding a shop, ask how they paper the fee agreement up front, because that's the only place a borrower sees it before docs.

nataliehsu · Answer

So on the conventional side the borrower can basically never see what the lender paid the broker? Or is it on the disclosure somewhere and I've just never looked in the right box.

Where does the money come from on a bridge loan, points or rebate

3 replies