Is California a Table Funding State?

Real estate mortgage funding is a complex yet fundamental aspect of property transactions, enabling individuals and businesses to acquire homes and other real estate assets. The process involves multiple stages, from initial application to the final disbursement of funds, each governed by specific financial practices and regulatory frameworks. Understanding how mortgages are processed and funded provides clarity for anyone navigating the property market. This knowledge helps ensure a smooth transaction, whether for purchasing a primary residence or investing in commercial property.

Defining Table Funding

Table funding is a specific method in mortgage lending where a loan originator, such as a mortgage broker, facilitates a loan but does not provide the capital from their own balance sheet. Instead, a third-party capital provider, often referred to as the ultimate lender or investor, supplies the funds directly at the loan closing. The loan is originated by one entity and immediately sold and assigned to another at the closing table itself. The term “table funding” originates from the idea that the transaction is funded and loan ownership is transferred concurrently, right at the closing table.

In this arrangement, the mortgage broker typically handles the loan application, processing, and underwriting, acting as the primary point of contact for the borrower. The loan documents may initially name the broker as the lender, but an immediate assignment of the loan to the actual funding entity is executed simultaneously with the funding. This allows the broker to facilitate loans without needing to maintain substantial capital reserves for direct lending.

The immediate transfer of funds and ownership distinguishes table funding from other mortgage financing models. This process can offer efficiency by streamlining the funding step, as the loan is effectively pre-sold to the investor before the closing. The arrangement relies on clear agreements between the originator and the capital provider to ensure proper execution and compliance.

Primary Methods of Mortgage Funding

Beyond table funding, mortgage loans are commonly financed through several other established methods, each with distinct operational characteristics. One prevalent approach involves direct funding, where a single financial institution, such as a bank or credit union, originates the loan and funds it directly from its own capital reserves. This institution then typically retains the loan in its portfolio or sells it on the secondary market at a later time.

Another common method involves correspondent lenders, which are entities that originate and fund loans using their own warehouse lines of credit. These lenders then quickly sell the loans to larger investors in the secondary market. While correspondent lenders use their own capital to fund the loan initially, their business model relies on the rapid sale of these loans to replenish their credit lines. This allows them to manage a high volume of originations without holding loans long-term.

Mortgage brokers also play a significant role in the funding landscape by acting as intermediaries. They connect borrowers with various lenders but generally do not fund loans themselves. Instead, they arrange loans between borrowers and wholesale lenders, who then underwrite and fund the loans.

California’s Specific Regulations on Table Funding

California maintains a clear and specific stance regarding table funding practices, particularly under the California Financing Law (CFL). The Department of Financial Protection and Innovation (DFPI), which oversees the CFL, explicitly states that the practice commonly known as “table funding” is not permitted for entities licensed under this law. This prohibition applies to finance companies selling real estate secured loans to institutional investors.

Under the California Financing Law, a finance company must fund loans from its own resources, exclusive of any advances received from an institutional investor committed to purchasing the note. They are not permitted to rely on capital providers or trust deed investors to supply funds directly at closing in a table-funded arrangement.

The regulatory framework in California emphasizes transparency and accountability regarding the actual source of loan funds. Regulators, including both the DFPI and the Department of Real Estate (DRE), have expressed concerns about scenarios where a mortgage broker appears as the lender but does not provide the capital. They require that the true funding source be disclosed to the borrower and that the actual lender is named in the loan documents at closing.

This regulatory position ensures that there is no ambiguity about who is providing the financing at the time of the transaction. For originators licensed under the Department of Real Estate, there is a mandate to disclose who is actually funding the loan and who will hold the deed of trust. The state’s approach aims to prevent “shadow funding” where the ultimate capital provider remains undisclosed during the closing process.

Navigating Mortgage Funding in California

Given California’s regulations, individuals and professionals involved in real estate transactions must understand the state’s specific mortgage funding landscape. In California, mortgage loans are funded through entities holding specific licenses, such as those under the California Financing Law (CFL), the California Residential Mortgage Lending Act (CRMLA), or a Real Estate Broker license from the Department of Real Estate (DRE). Each license type permits distinct activities, whether it is direct lending, brokering, or servicing loans.

At the loan closing, funds are disbursed, and the property title is officially transferred. Borrowers receive disclosures, such as the Loan Estimate and Closing Disclosure, which detail the loan terms, interest rates, and all associated costs. The funding process in California is structured to ensure that the actual lender is clearly identified and that all regulatory requirements are met, providing a regulated and transparent environment for mortgage transactions.