Precept Preaches Certainty of Execution

There's Gotta Be a Better Way... "The traditional loan origination process is overly complex and illogical." That's the battle cry of Precept. Here's Cary Carpenter, Managing Director at Precept, "The average hit rate for lenders is 5%, which means that borrowers, brokers and lenders alike waste huge amounts of time and money vetting loans that are never made."

So Precept has developed a centralized due-diligence platform and digital marketplace to benefit all three parties. First, Precept underwrites a loan, with its own staff preparing the financial analysis and coordinating third party due diligence. In fact, S&P accepts Precept's financial analysis for the CMBS market. Next, Precept posts a complete loan package online for review by lenders.

Currently Precept has signed up a dozen lenders, including Morgan Stanley, Pacific Life and Salomon Brothers. After the Review Period, the process moves to Sealed Bidding with lenders submitting complete details on the terms of their bids. If the borrower doesn't accept one of these sealed bids, the process moves to Open Bidding. Brokers source all loans for Precept and play an active role throughout this digital process.

Borrowers pay the normal one percent fee to their brokers. So how does Precept make money? Precept charges the borrower an application fee that depends upon a number of factors but runs around $3,000 -- the same fee normally charged by a lender. In addition, the borrower pays a success fee to Precept ranging from 5-10 basis points. Finally, Precept charges lenders a success fee of 25-50 basis points. The value proposition to all three players is the same -- greater certainty of execution. Thus, each player wastes far less time and is free to concentrate on its core strength.

--Peter Pike