One of the most important decisions for any new entrant to the mortgage market is the financing of the crucial early phase of its creation. In the absence of the assistance of entrenched investors, able to provide equity to obtain and serve a large volume of mortgages, new initiators have traditionally opted for inventory financing as their preferred financing method. However, a notable recent trend has been the emergence of cash flow agreements as a viable alternative. This note examines some of the characteristics of forward financing structures and inventory financing structures from the perspective of a new initiator and examines why the forward flow is gaining traction. Cash flow agreements provide a convenient way to obtain funds for start-up mortgages. The right partnership between the initiator and the lender can allow an initiator to use the lender`s balance sheet to launch or increase their mortgages, while the lender can use the initiator`s existing credit platform to quickly deploy funds in different markets and asset classes. – The investor invested in a cash flow will continue to work for the duration of the agreement, so that investors can reduce their risk of reinvestment compared to the purchase of individual credits. Cash flows include the transfer of economic interest and credit risk from the mortgage asset to the lender, usually subject to limited recourse rights against the initiator. The lender purchases the new credits at face value, with a premium or an origination premium, taking into account the portfolio`s performance risk and the resulting benefits or disadvantages. The fact that the final credit risk of the assets lies with the lender has an impact on the provisions contained in the documents, such as the restrictions that may apply to the liability of the initiator in the event of non-compliance with guarantees and guarantees at the level of wealth.

In short, the original risk usually remains with the initiator, while credit risk generally shifts to the funder. “Fast-flow transactions allow companies to sell unpaid invoices to a collection company at specified intervals and at an agreed price,” explains Yves Van Nieuwenburg, sales manager at EOS Contentia in Belgium. “This is a potential win-win situation. Our partner sells its debts at regular intervals and receives money for debts that have not yet been settled until the end of their internal collection process. And for EOS too, the transaction is profitable: “Because we carefully calculate any recovery costs. It can be seen as something rather oriented towards traditional credit contracts, which would involve LMA-style alliances, standard mechanical events and some of the technologies (such as a buyback mechanism) that you might find in a typical bilateral/small club agreement. On the other hand, a storage facility may allow an initiating institution to buy back voluntary loans if the conditions are met, for example if this would help correct a portfolio test failure or allow the initiator to refinance loans on public markets.