Page 36 Spring 2019 Points of Interest • Reg D Rule 506B – Allows up to 35 non-accredited investors nationwide. Prohibits advertising. • RegDRule506C – Permits advertising but limits the fund to raise capital nationwide from verified accredited investors only. • RegATier2–Permitsfundstoadvertise and raise capital from an unlimited number of non-accredited investors with SEC approval of offering docs and periodic reporting. • RegS – Permits American funds to raise capital overseas. Advertising overseas is permitted. The Risks and Challenges of a Mortgage Fund First off, running a mortgage fund is NOT a part-time job. A mortgage fund is critical to scaling and growing a private lender’s business. This growth may require more staff, software, vendors, and additional marketingtofullyadvancetheopportunity that a fund presents. Some key mortgage fund pieces include upgraded accounting and legal help, loan servicing software and service provider, fund supervision, staffing, and investor relations and marketing to ensure you have a steady pipeline of investors ready to help grow your fund. Funds may also face obstacles related to liquidity, cash flow, and liability. Typically, mortgage funds establish set reserves, along with cash-flow guidelines that help protect the fund in case of defaults. Funds usually task CPAs with putting safeguards in place to protect the fund from leveraging too much capital or funding individual loans above 10% of the funds’ portfolio. Starting a Mortgage Fund Private lenders, brokers, and other non- conventional lenders seeking to create a mortgagepoolshouldbeginbyevaluating the information on how to best proceed. The starting point includes consulting with a law firm that understands the complexities involved with setting up a fund and the law surrounding securities offerings and exemptions on both a state and federal level. Amortgagefundcansignificantlyincrease revenue, create new opportunities, and scale production and originations, but without the proper guidance, a mortgage fundnotestablishedcorrectly,couldcause headaches,bothfinanciallyandlegally,for both the fund manager and investor. Mortgage Funds – continued from page 36