A daisy chain is when one commercial loan broker takes a commercial loan to another commercial loan broker, who then tries to take that commercial loan to a lender.
Daisy chains don’t close!
There are a number of reasons why daisy chains don’t close:
- The loan fees quickly get excessive. The first broker tries to charge a point. Then the second broker adds two more points. (Often a third broker tries to add another point or two.) The lender charges three points. Pretty soon you’re trying to sell the borrower on paying six to seven points for a three to four point loan. Folks, in real life, borrowers never sit still for packing (a loan that gets packed with excessive loan fees). And if a borrower will sit still for packing, his loan is so bad that he is desperate. Loans for financially desperate borrowers almost never close.
- Communication gets garbled. Do you remember that game in we used to play in the first grade? Seven people stand in a line. The first guy whispers a phrase into the ear of the second guy, “Billy Batson has a crush on Lizzy Larson.” The second guy whispers the message into the ear of the third person … and so on. By the time the message reaches the seventh person in line, the message has been grossly distorted, “Billy brained Lizzy with a bat, and now she’s in Larson Hospital.” Lenders can tell when a deal is involved in a daisy chain. They quickly get irritated and turn the deal down.
- Most daisy chains involve the blind leading the blind. One of the first lessons that everyone learns in the commercial mortgage brokerage business is that daisy chains don’t close. This means that if another commercial mortgage broker is willing to let you stay in the loop and add a point or two to the deal, then that second commercial mortgage broker is obviously a complete rookie too! (In other words, this so-called placement expert upon whom you're relying is a rookie himself and an idiot.) Rookies don’t have special, four-year relationships with some bank loan officer, the type of relationship it often takes to actually close commercial loans. If you're involved in a daisy chain right now, you may still be in denial. Don’t worry about it. You’ll eventually discover for yourself that daisy chains don’t close. We all learn that lesson.
- How it should work. Suppose an experienced commercial mortgage broker uses rookies as his bird dogs to bring him commercial loan applicants. He would pay his bird dogs 10% to 20% of whatever loan fee he managed to earn (rather than allowing them to pack on points), and he would insist on speaking directly to the borrower. He would not allow anyone to stay between him and the borrower. Then the experienced broker would take the deal directly to a bank, with no one else in between. Such a working relationship is far-far different from the silly, hopeless daisy chains that we regularly see here at Blackburne & Sons.
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