Carl H. Lindner College of BusinessCarl H. Lindner College of BusinessUniversity of Cincinnati

Carl H. Lindner College of Business

Real Estate - Mortgage and Construction Lending

Mortgage lenders specialize by size of loan and property types, like developers or commercial brokers. Primary lenders for residential single family include mortgage companies that resale loans in the secondary mortgage market, as well as commercial banks, savings institutions and credit unions. Banks and savings institutions usually pay employees on a salary basis, sometimes with a bonus. Mortgage companies rely more on productivity-based compensation. Loan officers must know about credit analysis, as well as appraisal, title, environmental concerns and a host of other government regulations. Multifamily mortgage lenders act much like commercial mortgage lenders with more emphasis on property analysis including market trends, tenant review, income and expense review as well as the value of the subject property being used as collateral. Commercial banks and savings institutions provide most of the smaller multifamily loans while life insurance companies, pension funds, Real Estate Investment Trusts (REIT) and Securitized Mortgage Loans and pension funds provide larger scaled financing.

Non-residential mortgage loans involve commercial banks as well as life insurance companies and pension funds as typical suppliers of capital. Commercial mortgage lenders require more business education and analytical skills than do the residential lenders, often requiring graduate education. Mortgage brokers are often used to represent smaller life insurance companies and pension funds that cannot efficiently process their own loans. Mortgage brokers work on a commission basis paid after successfully placing mortgage loans that meet the needs of the borrower and lender.

Construction lending is the most complicated end of the financing spectrum involving all of the concerns of the permanent mortgage lender (credit, income, expenses, property value and environmental) as well as absorption risk, construction cost risks and delays, and other concerns. Thus, construction lenders are often hired from among the ranks of experienced mortgage lenders. Most construction lending is provided by commercial banks.

In the future we expect more mortgage money to come from securitized capital market instruments via mortgage brokers and capital market investment bankers. For more information about mortgage banking, see the Mortgage Bankers Association, MBA.