Hedge Funds - Banks - Mortgage Lenders

[Rob McLaughlin]

Without a doubt 2014 is the beginning of a new era in the Real Estate Lending Industry. Can anyone clarify the relationships of these three lending institutions. I think we have to determine this before we can attempt to understand the new concept of "Institutional Crowdfunding".

It sounds like Institutional Crowdfunding of Loans is just a new name for the same old players but may now include Hedge Fund Operators that have made themselves "accredited" and without "accreditation" you can not participate in buying into your slice of the Institutional Lending Pie?

The only new twist is that now with all the hundreds of thousands of homes that these have, ah-em, acquired(?) Institutional Lenders are now REO Owner Financing if not rehabbing to owner finance.

Does Instutional Crowdfunding = a Super PAC?

[Dion DePaoli]

"Institutional Crowdfunding" is buzz term that is emerging from folks trying to push crowd funding. The SEC does not recognize this term nor does this term really mean anything away from who ever is trying to use it.

Crowdfunding is the process of raising less than $1.0 Million within a 12 month time frame for new start ups. All securities, which is what this is, are required to register unless exempt. The Crowdfunding exemption was created to allow for smaller amounts of capital to be raised exempt from registration as the registration and compliance for raising money can be costly and for small capital raises can quickly become more costly than the funding target.

The rule allows folks with less than $100k in net worth to give up to 5% to a capital raise or up to 10% if more than $100k in net worth. Since there is no rule around accredited investors for Crowdfunding, which has an SEC definition, using the term "Institutional" does not really mean anything.

Crowdfunding is not method of capitalization for banks. Crowdfunding for Investment Funds which are exempt from registration under Regulation D are also not likely all that great of a way to raise capital either. The CF rule only allows $1.0 Million in a 12 month period. Frankly, institutional investors raise more money than that in a month and depending on the institutional many times a week or day.

In general, institutions which are already subject to security reporting requirements do not get a free pass with Crowdfunding in most cases they can't realize the exemption at all. They still have their reporting requirement which must be adhered to. Specifically, Section 3(c) of the Investment Company Act already address exemptions for Hedge Funds and the new rule is not a rule to allow these types of institutions to pursue Crowdfunding as a manner to raise capital.

Moral of the story, I don't agree with your inference. Crowdfunding is not here to replace the other reliable forms of raising capital. It is here to serve the purpose of funding for low tier start up capital investments. We will not see JP Morgan roll out some major Crowdfunding division to do much of anything.

I don't understand what you mean about the REO.

[Rob McLaughlin]

Thank you Dion for responding. Reading the many other threads on "Crowdfunding" is very confusing. First of all what I'm trying to understand is a clearer definition for a very broad term; Crowdfunding.

As you know there are many different websites that started the term. Some for completely benevolent reasons like funding a person for $500.00 on the other side of the world, people chipping $10 -20 to reach the goal and not wanting a return on their money. Then there are some that do set you up for a return on your small cash. The same is applied for business startups, inventions to funding small movie productions.

Now the "Crowdfunding" term has morphed into mortgage lending, and nobody seems to have or want a more specific terminology. "Institutional", because clearly it is and of course not known as an IRS or SEC description. But there is a decisive difference in the types of "Crowdfunding" and any Industry (for profit) must clearly define it's self.

Then I read of all the talk that an investor must be accredited and how can we now be sure the person is accredited. In your post you clarify;

"The rule allows folks with less than $100k in net worth to give up to 5% to a capital raise or up to 10% if more than $100k in net worth."

This is the info I'm looking for, telling who's allowed to play in this game.

REO, means Real Estate Owned (bank owned). I'm going to look at a property today that it might be Bank Owned and they are saying they will Owner Finance the house. Banks acquiring (through foreclosure) and holding property? Because they have made conventional lending too high a hurdle?

I'll post what I find about this.