What Is Table Funding? A Comprehensive Guide for Real Estate and Mortgage Professionals

In the dynamic world of real estate and mortgage lending, various financing methods cater to the diverse needs of buyers, sellers, and lenders. One such method is table funding, a process that facilitates immediate loan funding at the closing table. This article explores the intricacies of table funding, its operational mechanics, benefits, and potential drawbacks.

What Is Table Funding?

Table funding is a financing method where a loan is funded by a third-party lender at the time of closing. In this arrangement, the originating lender or broker closes the loan in their name but utilizes the funds provided by another lender, who simultaneously acquires the loan through an assignment at closing.

According to the Consumer Financial Protection Bureau (CFPB), table funding involves a settlement where a loan is funded by a contemporaneous advance of loan funds and an assignment of the loan to the person advancing the funds. This process is distinct from secondary market transactions. 

How Does Table Funding Work?

The table funding process involves several key steps:

• Loan Origination: A mortgage broker or correspondent lender originates a loan for a borrower, processing the application and underwriting the loan.
• Funding Arrangement: The originating entity arranges for a third-party lender to provide the funds needed for the loan at closing.
• Closing: At the closing table, the third-party lender provides the funds, and the loan is closed in the name of the originating entity.
• Loan Assignment: Immediately upon closing, the loan is assigned to the third-party lender who provided the funds.

This method allows the originating entity to offer a broader range of loan products without utilizing their own capital, while the funding lender acquires new loans without the need to originate them directly.

Benefits of Table Funding

Table funding offers several advantages for various stakeholders in the mortgage and real estate industries:

For Mortgage Brokers and Correspondent Lenders:

• Expanded Product Offerings: Enables brokers to offer a wider array of loan products without the need for substantial capital reserves.
• Operational Efficiency: Streamlines the loan process by allowing immediate funding at closing, reducing delays.
• Risk Mitigation: Transfers the funding risk to the third-party lender, minimizing the financial exposure of the originating entity.

For Funding Lenders:

• Loan Acquisition: Provides an avenue to acquire loans without the need to originate them, expanding their loan portfolios.
• Market Penetration: Facilitates entry into new markets through partnerships with local brokers and correspondents.

For Borrowers:

• Faster Closings: Accelerates the loan process, enabling quicker access to funds and property ownership.
• Competitive Rates: Potentially offers more competitive loan terms due to the efficiencies gained through table funding.

Considerations and Potential Drawbacks

While table funding presents numerous benefits, it’s essential to be aware of potential challenges:

• Regulatory Compliance: Originating entities must ensure compliance with all applicable regulations, as they are initially listed as the lender.
• Quality Control: Funding lenders must rely on the originating entity’s underwriting and processing, necessitating robust quality control measures.
• Reputation Risk: Any issues arising from the loan origination process can impact both the originating entity and the funding lender’s reputations.

Table Funding vs. Traditional Funding

Aspect	Table Funding	Traditional Funding
Funding Source	Third-party lender at closing	Originating lender’s own funds
Loan Assignment	Immediate assignment to funding lender	Retained by originating lender
Capital Requirements	Lower for originating entity	Higher for originating lender
Processing Time	Faster closings	Potentially longer due to funding processes

Legal and Regulatory Framework

Table funding is subject to various legal and regulatory considerations:

• RESPA Compliance: The Real Estate Settlement Procedures Act (RESPA) outlines specific requirements for disclosures and practices in table-funded transactions.
• State Regulations: Some states have specific laws governing table funding practices, necessitating thorough legal review.
• Licensing Requirements: Both originating entities and funding lenders must ensure they hold the appropriate licenses for their roles in the transaction.

Conclusion

Table funding serves as a valuable tool in the mortgage and real estate industries, offering flexibility, efficiency, and expanded opportunities for brokers, lenders, and borrowers. By understanding the mechanics, benefits, and regulatory considerations of table funding, industry professionals can leverage this method to enhance their service offerings and operational effectiveness.

FAQs

1. What is table funding in mortgage lending?

Table funding is a process where a third-party lender provides funds at the time of closing, even though the loan originated in the name of a broker or correspondent lender. The loan is then immediately assigned to the funding lender.

2. Is table funding legal?

Yes, table funding is legal in many jurisdictions, but it must comply with federal and state regulations, including RESPA (Real Estate Settlement Procedures Act) and licensing requirements. It’s important for all parties involved to adhere to proper disclosure and documentation.

3. What are the advantages of table funding for mortgage brokers?

Table funding allows brokers to:

• Offer more loan products
• Close loans without using their own capital
• Minimize funding risk
• Speed up the funding process for clients

4. Who provides the funds in a table funding arrangement?

In table funding, the third-party lender (also known as the investor or funding lender) provides the loan funds at closing. The broker or correspondent lender originates the loan but does not use their own money.

5. How is table funding different from warehouse lending?

While both involve third-party financing, warehouse lending uses a line of credit to fund loans temporarily before selling them to investors. In contrast, table funding provides loan capital directly at closing, with no interim period where the broker holds the loan.

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