Semifiduciary and nonfiduciay lenders

The second general source of funds for real estate finance is a group known as financial semi fiduciaries. This heterogeneous group is composed of real estate mortgage brokers and bankers, real estate mortgage and investment trusts, real estate bond dealers and endowment fund managers. Some semifiduciaries arrange mortgages between the major fiduciary lenders and borrowers. Others make direct loans using their own funds.

Unlike banks, savings institutions, life insurance companies, pension funds and credit unions, which are directly responsible to their depositors and premium payers, the semifiduciaries are removed from a first-person relationship. Although the quality of a fiduciary relationship is somewhat implicit in their actions, the semifiduciaries' responsibilities are directed either internally, to their owner-partners, or externally, to the primary fiduciaries that they represent, but never directly to any depositors or premium payers. Although a semifiduciary is expected to invest entrusted funds with sound

the case in a primary fiduciary relationship. The distinction is quite fine, but it allows the semi fiduciaries to take more risks than the primary.

Mortgage brokers and bankers usually arrange first real estate mortgages between borrowers and financial fiduciaries that reflect the latters' conservative underwriting requirements. The investment trusts may lend money on second or even third mortgages, which entail somewhat higher risks. Even in the first instance, however, the fiduciary responsibility is external, between the mortgage brokers or bankers and their client fiduciary institutions, while the primary fiduciary responsibility remains between the banks, savings associations and life insurance companies and their depositors and premium payers. In the second instance, the fiduciary responsibility is internal, between the managers of the trust funds and the trusts' owner-beneficiaries. Owners have chosen their manager on the basis 6f investment acumen, but no one has promised that every investment will be a success. The owners are willing to take some risks in order to earn high yields, and it is the manager's job to choose these investments wisely. This same fiduciary relationship also exists between real estate bond brokers and their clients as well as between the managers of foundation endowment funds and the funds' donors.

A final group of lenders that provides funds for real estate finance is generally described as financial nonfiduciaries. This group includes private loan companies and individuals. Little precise data are available about the overall impact of nonfiduciary lenders in the realty money market because of the relatively private nature of the participants' transactions. Because these nonfiduciaries invest their own funds in real estate finance, they owe no duty to others and can maintain complete discretion over their activities.

Despite this comparative freedom to make all final decisions, nonfiduciaries observe certain limitations. Nobody invests to lose money, so good underwriting practices must be followed. Nevertheless, of all the lenders in the field of real estate finance, the nonfiduciaries have the most flexibility and can take the most risks, which often makes them the only source available to finance certain real estate transactions.

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