504 Funding Explained

The final step and, therefore, the most important, in a 504 transaction is the actual funding of the 504 portion or payment of the second mortgage amount (the “takeout”) to the FFC lending partner that provided interim financing.

20 year debentures are purchased and the funds disbursed once a month, usually near the 15 th. 10 year debentures are purchased and funded on a quarterly basis. These funding dates are established annually and the dates may be obtained from FFC.

Mechanically, all debentures to be sold are “pooled” a week prior to the funding date and commitments to purchase parts of this pool are obtained from non-government investors – primarily banks and insurance companies. On the funding date, the investors’ money is transferred by wire to each participating interim lender in the amount of the net debenture and the second mortgage portion of the transaction then becomes a loan to be serviced by a FFC.

Within the first week of funding, all the funding documents are obtained by FFC’s servicing department and sent to the each borrower by whatever method is preferred. These documents are:

• Executed Debenture.
• Executed Note.
• Date and details of the first payment.
• Form of payment to be used, normally by electronic transfer through the Automated Clearing House (ACH).
• A full amortization of the loan, which includes full detail of all fees added to the loan’s principal and interest.
• Statement of the loan’s full term “effective rate.”
• A schedule of prepayment penalties.

After funding, the lender proceeds to collect its first mortgage payments and FFC monitors the payments of the second mortgage. FFC’s servicing department remains in contact with the first mortgage lender so that both parties are aware of any changes in their individual loans. Lenders are welcome to contact Lynn McDaniel, FFC Senior Vice President of Portfolio Management (850-681-3328), at any time regarding the status of mutual projects.