The next question you are likely asking yourself is:
“What are the challenges to running a Mortgage Pool on a daily basis?
The FIRST challenge – is accounting. The mortgage pools are pool basis taxpayers, which means you have to get in tune with the pool accounting. For example, our pools typically have very few expenses. Most expenses are borne by the mortgage pool manager. One of the expenses is an annual CPA audit. That expense is, let’s say $15,000 a year. On an accrual basis, you would take 1/12th of that $15,000 and charge it against pool income every month, even though you are not paying the CPA until the end of the year. So getting used to that monthly task is sometimes a small challenge to get ‘used to’ for lenders new to operating a mortgage pool.
Fortunately, there are two software vendors that do provide pool accounting software that will generate your investor checks, do your internal accounting and the like. You will not be operating blind without help and guidance! You do not have to reinvent the wheel or devise new accounting software or procedures – it already exists and makes creating your very first mortgage pool fund than much easier. Moreover, the experts at Doss Law are but a phone call away to answer any questions than may arise at any time.
The SECOND challenge – is managing cash flows. Imagine. There are a lot of moving parts here. You have money coming in from investors, you have money going out for new loans — your pipeline, you have payments coming in from borrowers – with interest, you have payoffs coming in from borrowers. All of that financial data must me considered and spread-sheeted once per month. You have to manage that.
You don’t want to have a lot of cash sitting around — basically sitting there idle. On the other hand, you want to have investor funds ready to come into your fund for the larger loans, and the immediate funding ability.
The THIRD challenge – is Investor Re-Education. As I see it –from my unique vantage point of working with our Mortgage Pool clients– is the need to re-educate your Investors away from deeds of trust and other security documents. Many of my clients, for years and years, have preached to their clients “the mortgage” or “deed of trust” and how those security instruments gives your investors a measure of security. You have to reeducate your investors about the benefits and the safety they can get from a Mortgage Pool vs. having their name on a security instrument in the county Recorder’s office.
The FOURTH challenge – is Pension Plan Investment is somewhat limited in a Mortgage Pool to 20% of total pool assets. Therefore, if all your clients are in Mortgage Pools, you may not be able to get all your client’s money into the Mortgage Pool.
IDEA FOR A NEW PAGE: Mortgage Pools vs. Fractionalized Deed of Trust Lending