Source: firsttuesday Journal —
Question: What is the difference between a business and consumer mortgage loan?
Answer: A business mortgage — also known as a commercial loan — is a separate category of mortgage controlled by California rules and practices than a consumer mortgage controlled by Federal rules, differentiated based on both the use of the funds and the property securing the mortgage.
A consumer mortgage is a loan secured by a one-to-four-unit residential dwelling acquired and made primarily for funding a:
- personal;
- household; or
- family use. [12 Code of Federal Regulations §1026.2]
In contrast to consumer mortgages, business mortgages are made for other than personal, household or family use and are secured by any type of real estate, including a one-to-four-unit residential property.
Business mortgages are not regulated by federal law with the exception of due-on clause enforcement. [12 United States Code §1701j-3(e)]
MLBs originate business mortgages
A Department of Real Estate (DRE)-licensed broker and their agents with a mortgage loan originator (MLO) endorsement may negotiate both consumer mortgages and business mortgages. [See RPI ebook: Mortgage Loan Brokering and Lending: Chapter 40]
Thus, in California, a DRE licensee holding an MLO endorsement has the authority to offer services as a mortgage loan broker (MLB) able to originate both consumer and business mortgages. This authority to arrange and receive a fee for all variety of mortgage funding secured directly or indirectly by any type of real estate and borrowed for any purpose enables an MLB to continue earning income from various sources when traditional mortgage originations are few — in other words, recession proof.
However, an MLB who limits their practice to making or arranging business mortgages — not consumer mortgages — does not need an MLO endorsement. [Calif. Business & Professions Code §10166.01(b)(1); §10131(d)]
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