Some Fund Managers may borrow money from third-party lenders (“Leverage Providers”) to fund additional Mortgage Loans.  In order to obtain such a Loan, the Fund may assign part or all its loan portfolio to the Leverage Provider. 




Investors of the Fund will be subordinated to the Leverage Providers. The Leverage Providers may advance an agreed-to percentage of each loan (typically between 50% and 85% of the loan amount) and will be senior to the Investors of the Fund. 




Some of the borrowed money may have interest at a variable rate, whereas the Fund may be originating fixed rate Mortgage Loans.  If the borrowed money interest rates rise, the Fund’s cost of money could exceed the income earned from that loans originated, thus reducing the Fund’s profitability or causing losses.




Leveraging a Fund may also result in the receipt of some taxable income for Investors using their IRA accounts, 401K or some other tax-exempt programs.




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