Hello,

Can someone detail the BSA rules for hard money lenders? Are they the same as the rules for non-bank residential mortgage lenders and originators (RMLOs)?

Thanks in advance!

You've had 64 looks and no reponses so I'm going to suggest that "hard money lenders" is a term not normally associated with the Bank Secrecy Act.

The Index to Chapter X shows how the regulation is broken down by industry. Look for what you believe to be a synonym there.

I don't see anything that would exempt a hard money lender. The definition goes so far as to include sole proprietors. So yes, the rules for loan and finance companies would apply.

(lll) Loan or finance company. A person engaged in activities that take place wholly or in substantial part within the United States in one or more of the capacities listed below, whether or not on a regular basis or as an organized business concern. This includes but is not limited to maintenance of any agent, agency, branch, or office within the United States. For the purposes of this paragraph (lll), the term “loan or finance company” shall include a sole proprietor acting as a loan or finance company, and shall not include: A bank, a person registered with and functionally regulated or examined by the Securities and Exchange Commission or the Commodity Futures Trading Commission, any government sponsored enterprise regulated by the Federal Housing Finance Agency, any Federal or state agency or authority administering mortgage or housing assistance, fraud prevention or foreclosure prevention programs, or an individual employed by a loan or finance company or financial institution under this part. A loan or finance company is not a financial institution as defined in the regulations in this part at 1010.100(t).

(1) Residential mortgage lender or originator. A residential mortgage lender or originator includes:

(i) Residential mortgage lender. The person to whom the debt arising from a residential mortgage loan is initially payable on the face of the evidence of indebtedness or, if there is no such evidence of indebtedness, by agreement, or to whom the obligation is initially assigned at or immediately after settlement. The term “residential mortgage lender” shall not include an individual who finances the sale of the individual's own dwelling or real property.

(ii) Residential mortgage originator. A person who accepts a residential mortgage loan application or offers or negotiates terms of a residential mortgage loan.

(iii) Residential mortgage loan. A loan that is secured by a mortgage, deed of trust, or other equivalent consensual security interest on:

(A) A residential structure that contains one to four units, including, if used as a residence, an individual condominium unit, cooperative unit, mobile home or trailer; or

(B) Residential real estate upon which such a structure is constructed or intended to be constructed.

Thanks for the input, folks! A colleague of mine also reached out to a FDIC examiner and she also agreed with Kathleen's statement on the matter.

Realistically - "Hard Money" lenders are just a sub-set of non-bank lenders. The "Hard Money" lable comes from the fact that these folks will lend on properties or to borrowers that other lenders won't touch for risk reasons, and these folks will lend but they charge the figurative "arm and a leg" for the loan.

Typical Hard Money loans are for people with really, really, really bad credit, or properties that aren't your "normal" type - either because they are badly damaged, have all sorts of unpermitted improvements/add-ons, or they are mixed use - like a mobile home sitting in or next to a junk yard, and so on.

I am interested in this topic also. We have an application for an applicant that is becoming a hard money lender. What would be my due diligence? I am assuming I will risk rate this as a high risk account. I assume also that I will need to review some type of BSA program for the hard money lender. Am I way off base here, or am I on the right track?

Just for deposit accounts or lending to them? For lending you want a lot of regulatory compliance info. I have been involved in some requests and we could not get comfortable enough to be willing to risk having the bank's funds involved with poorly disclosed loans.

It is for a loan to finance the hard money lender. What are our risks in providing the funding for poorly disclosed loans?

At a minimum, a lot of (bad) reputation risk. Will the bank be secured by the loans? Could you end up owning them? Could they be considered predatory, discriminatory? Could they be uncollectable due to (lack of/incorrect) documentation?

We had outside counsel involved in the evaluation and just could not get comfortable with the particular lender.