arranges loans between buyers and lenders

Arranges Loans between Buyers and Lenders: Forward Flow Arrangements Gain Traction

The mortgage industry has seen a significant shift in recent years, with forward flow arrangements becoming an increasingly popular option for originators looking to arrange loans between buyers and lenders. In this article, we will explore the features of forward flow structures and why they are gaining traction among new entrants to the mortgage lending market.

A key aspect of securitization and warehouse financing transactions is the transfer of legal and beneficial title to mortgage assets. This process is consistent with the sale of receivables to a special purpose vehicle (SPV) without initially notifying underlying debtors. The beneficial and economic interest in loans are transferred to funders on day one, while legal interest only tends to pass following trigger events linked to the originator's or servicer's performance and creditworthiness.

Forward flow arrangements typically involve an outright purchase by the funder of loans that have been advanced by an originator in accordance with eligibility criteria. While this commentary focuses on mortgage lending, many of the principles can be applied (with tailoring) to the funding of other assets such as receivable flows and financial assets.

One notable trend in recent years has been the emergence of forward flow arrangements as a viable alternative to traditional warehouse financing. Without the backing of deep-pocketed investors able to provide the capital needed to originate and service a sizeable volume of mortgage loans, new originators have traditionally opted for warehouse financing as a preferred method of funding.

However, forward flow arrangements offer several benefits that make them an attractive option for new entrants to the mortgage lending market. For one, they enable originators to access funding on day one, allowing them to originate and service a sizeable volume of loans without the need for significant upfront capital. Additionally, forward flow arrangements can provide greater flexibility than warehouse financing, as funders can be more selective in their loan purchases and may be willing to provide support for loans that do not meet traditional criteria.

In conclusion, forward flow arrangements are gaining traction among new originators due to their ability to offer a viable alternative to traditional warehouse financing. While these arrangements tend to be bespoke and privately negotiated, it is possible to identify common structures and terms that have recently been observed. As the mortgage industry continues to evolve, we can expect to see further innovation in forward flow arrangements, providing new opportunities for originators looking to arrange loans between buyers and lenders.

Arranges loans between buyers and lenders