Selling your mortgage note is not all about or just about price. It is also about working wit a buyer who will follow through and actually close at the agreed price. If you have a note to sell and you are not sure who to call, who to trust or what to look for yo will want to watch this short 9 minute video
What’s My Note Worth?
A question all note sellers have and have a right to know.
Timing Your Mortgage Note Sale is everything.
So, when is the correct time to sell your mortgage note?
The following utube video with my friends Walter Wofford and Jim Ingersoll is so to the point as to the value of trusts in any form of a real estate transaction.
They discuss the ultra importance of transactional privacy and how that helps with asset protection.Under what circumstances would you want the general public to know the properties you own?
Trusts provide privacy and effectively separate all of your investment assets. They are not hard to use and provide tremendous privacy in your deals as a trustee is used to hold title and the trust agreement is not recorded at the courthouse.
Under what circumstances would you not like the public to know that you own a property?
What are the benefits of using trusts?
1. Privacy – Keep your name and LLC out of public records
2. Liens and judgments
3. Probate benefits
4. Sell the entity, not the property
5. Personal property trusts for IRAs, cars, boats, etc
Today I cam across this article title,” The Three Ds of Doom: Debt, Default, Depression”. Without sounding negative, it certainly makes one think about the current economy. Everything appears to be booming, at least here in the greater Phoenix Metroplex. But………..what is under the covers. What goes up always comes down. It is a fact of life. Now apply this to the niche business. It is the paper side of real estate.
In the very near future, Capstone will be launching a Utube note training series on buying Notes. One of the topics as part of the due diligence series will be a deep dive into Investment to Value and Loan to Value. In other words, what is the note buyers safety net in the event of a downturn. How to minimize the pain in your portfolio. The only way I know is to have an EQUITY SPREAD. For instance, if a note has a $100,000 unpaid loan balance (aka UPB), what is your risk tolerance. What safety net do you require? The Capstone safety net is an Investment to Value (ITV) not exceeding 65% and a Loan to Value not exceeding 70%. Some say this is too big a filter. I guess time will tell. Anyway–moving on to the article.
The Three Ds of Doom: Debt, Default, Depression
July 17, 2019
“Borrowing our way out of debt” generates the three Ds of Doom: debt leads to default which ushers in Depression.
Let’s start by defining Economic Depression: a Depression is a Recession that isn’t fixed by conventional fiscal and monetary stimulus. In other words, when a recession drags on despite massive fiscal and monetary stimulus being thrown into the economy, then the stimulus-resistant stagnation is called a Depression. Read more
The August 7th Note Investors Forum Meetup focus on:
TOPICS: Several New Case Studies
Where Does a New Note Investor Begin
Bring your questions, This will be an interactive meeting.
The Next Note Investors Forum Meeting will be
Wednesday, August 7th 11:30am-1:30pm
La Famiglia Restaurant, SE corner of Dobson & Guadalupe, Mesa
I am passing this information along, not a a pessimist but, rather a realist in that history does repeat itself. The Feds have been kicking the can down the road for a long time.
How does this relate to notes? Capstone Capital USA is a value buyer of real estate assets verses a spectulative buyer. As such we only buy assets with a 35%-40% equity cushion — with a strong Payment history and seasoning on performing notes. With proper and detailed due diligence, notes are & will be a safe haven. Safety and security is everything. The following article from the Economic Collapse clearly articulates what is in front of our economy…………………
America’s long-term “balance sheet numbers” just continue to get progressively worse. Unfortunately, since the stock market has been soaring and the GDP numbers look okay, most Americans assume that the U.S. economy is doing just fine. But the stock market was soaring and the GDP numbers looked okay just prior to the great financial crisis of 2008 as well, and we saw how that turned out. The truth is that GDP is not the best measure for the health of the economy. Judging the U.S. economy by GDP is basically like measuring the financial health of an individual by how much money he or she spends, and I will attempt to illustrate that in this article. To read more CLICK HERE.
will be Wednesday, August 1st 11:30am-1:30pm
La Famiglia Restaurant, SE corner of Dobson & Guadalupe, Mesa
Note Due Diligence 201
one offs or a pool of assets.
Expect standing room only. The room is maxed out @ 50 attendees.
Buffet lunch served.
As readers of HousingWire are likely well aware, over the last few years, there’s been a shift in the mortgage business, with nonbanks significantly increasing their share of mortgage originations as the big banks dialed back in the wake of the financial crisis.
This shift was noted in a recent report from the Urban Institute, which showed that the nonbank origination share rose from 30% in 2013 to 60% in July 2017.
Over that same time period, Ginnie Mae experienced the largest shift, with its share of nonbank originations rising from 37% in 2013 to 75% this year. In 2011, nonbanks made up only 11% of Ginnie Mae’s originations. Ginnie Mae is the arm of the federal government that securitizes federally insured mortgages.
And, according to a new report from a government watchdog, Ginnie Mae was not prepared for the rise of nonbank mortgage lending and “did not adequately respond” to the changes in its lender base.
The report, published late last week by the Department of Housing and Urban Development Office of the Inspector General, states that over the last few years, Ginnie Mae “did not implement policies and procedures in a timely manner for its account executives to follow in managing issuers, did not develop a written default strategy, and did not assess and address the risks posed by nonbanks in a timely manner.”
The report notes that since the financial crisis, both the size and scope of Ginnie Mae’s business changed considerably.
As the chart below shows, the remaining principal balance of Ginnie Mae mortgage-backed securities has increased from $427.6 billion in 2007 to $1.7 trillion in 2016, an increase of 300%.
(Click to enlarge. Image courtesy of HUD-OIG)
While Ginnie Mae’s portfolio has tripled, the makeup of its business changed as well.
As the chart below shows, Ginnie Mae’s issuer base shifted dramatically over the last several years towards nonbanks.
(Click to enlarge. Image courtesy of HUD-OIG)
As the report notes, as of September 2016, six of Ginnie Mae’s top 10 issuers in its single-family MBS program were nonbanks. In 2011, only one of Ginnie Mae’s top 10 issuers was a nonbank.
In fact, Ginnie Mae never had nonbank issuers of this size, nor have nonbanks ever made up such a large portion of its issuer base.
The HUD-OIG report states that Ginnie Mae was not prepared for this shift and was forced to be reactive, rather than proactive, towards the shift in its business.
“This condition occurred because Ginnie Mae was not prepared for the rapid growth and shift in issuer base and its staff lacked the skills necessary to immediately respond to increased risks posed by these changes,” the HUD-OIG report states.
“As a result, Ginnie Mae may not identify problems with issuers in time to prevent default,” the report continues. “Additionally, it may not be able to properly service loans absorbed in a default and may require additional funds from the United States Treasury to pay investors in the event of a large issuer default.”
The OIG report states that in 2011, Ginnie Mae began reviewing its internal procedures but did not enact official changes until July of this year.
From the report:
In 2011, Ginnie Mae determined that its desk manual, which included its operating procedures, no longer reflected its current operation and stopped requiring its use. In late 2014, Ginnie Mae hired a contractor to review its current state. The contractor completed the review in 2015, and began working with Ginnie Mae to develop policies and procedures to replace the desk manual. Ginnie Mae began implementing the policies and procedures that resulted from this review in July 2017. Several account executives told us they did not have adequate policies and procedures to manage issuers. They said they learned how to perform tasks from one another.
The report also states that Ginnie Mae did not address the potential for defaults concentrated among several large originators that may rely on credit lines for funding, as opposed to depositories, which would theoretically have capital on hand to cover defaults if needed.
From the report:
Ginnie Mae did not develop a written default strategy, which included identifying, analyzing, and planning for all default scenarios and determining whether its staff and master subservicers had the capacity to default and absorb large issuers (issuer with more than 100,000 loans). Ginnie Mae operates with a small staff and relies heavily on contractors to perform its core responsibilities, including servicing loans absorbed from defaulted issuers. Ginnie Mae officials told us that they recognized the challenges Ginnie Mae faced and had ideas on how they would execute large or multiple-issuer defaults, but Ginnie Mae did not begin to implement a written strategy to address large issuers or all default scenarios until July 2017.
The OIG report lays out a series of recommendations for Ginnie Mae to enact to ensure the agency is properly overseeing nonbank originators, including:
- Develop and implement controls to ensure that policies and procedures for account executives are continually reviewed and updated to reflect changes in Ginnie Mae’s operations
- Develop and implement training programs to ensure that employee skill levels are developed to meet changing organizational needs to include secondary market training
It should be noted that Ginnie Mae’s Michael Drayne, senior vice president in the office of issuer and portfolio management, provided a response to the OIG’s report, as part of the published report itself.
In Drayne’s response, he states that Ginnie Mae responded appropriately and within its means to the changes in its business.
“The report asserts repeatedly that Ginnie Mae’s overall organizational response to the changing environment was not sufficiently timely, but nowhere is it explained how Ginnie Mae could reasonably have been expected to make substantial organizational changes more rapidly than it has been able to do, given the need to develop skills and procedures during the time merely to cope with day-to-day program management needs that did not previously exist,” Drayne writes in response.
“Our view, in fact, is that Ginnie Mae and OIPM staff in particular have displayed an unusual degree of vision, persistence and skill in re-organizing in the face of extraordinary change over a five-year period, without the occurrence of any significant lapses in the management of the MBS program,” Drayne add
The Federation of Certified REO Experts (FORCE) met Tuesday at the annual FORCE Rally within the 2017 Five Star Conference and Expo. Ed Delgado, Five Star President and CEO, spoke to the state of the industry, which he says is headed toward a microbubble.
“The market is about to change and we need to be ready,” said Delgado. “REO is going to increase in 2018 as we see more fractures in the market—how much is determined by location and how big the fall off in price points will be.”
According to Delgado, the real estate market is white hot while demand is still strong. These factors are driving price points, appreciation, and values way up. However, 5 to 10 percent spikes in appreciation along with price points that are overvalued by 15 to 20 percent aren’t a new observation—it’s something he witnessed in 2007 and 2008.
“This is what we think will happen in the next year: Regional or microbubbles will start to burst—pay attention to Denver, Dallas, San Antonio, Las Vegas, Phoenix, Los Angeles, and San Francisco,” said Delgado. “Delinquency will rise and foreclosures will increase.”
Additionally, after being devastated by Hurricanes Harvey and Irma respectively, Delgado said Houston has an understated delinquency population by as much as 300,000 while Florida homeowner insurance deductibles will create long-term hardships putting a greater financial strain on homeowners.
Delgado also spoke at the American Mortgage Diversity Council (AMDC) meeting Monday, detailing that though the group is working toward a better mortgage industry, there is still more work to be done.
In 2016, Judy Dominguez of Cherry Creek Mortgage, a residential lender based out of Greenwood, Colorado, had her spousal health insurance revoked and was saddled with about $40,000 in medical bills after her wife had a heart attack. Though they have a recognized marriage, the bank cited the decision to revoke as recognizing marriage as a union between a man and a woman.
“Every once in a while when discussing the AMDC I’ll have a well-meaning executive ask ‘what’s the point’,” said Delgado. “Ensuring that stories like this don’t happen again is the point.”
Delgado said that discussions are important and should be had, but anyone can pull professionals together so they can say the right things and feel good about themselves. Once the steps are defined, they must be walked out.
“It is up to each of us to pursue the change that we want to see with passion,” Delgado said. “The stakes are simply too high for us to give anything but our best.”
Proper and detailed due diligence is a must in purchasing a quality note. The note overview provided for each note in the note vault is a summary of what our underwriting has determined to be important points to consider when purchasing note. Let’s look at them line by line.
TYPE–means the type of security. It could be a land contract, mortgage or deed of trust
CFD — means Land Contract, Contract for Deed or Agreement for Deed all of which are synonymous.
VALUE–is the value we have determined usually by a BPO(broker price opinion), sometimes referred to as a CMA(Competitive Market Analysis)
CURRENT BALANCE–is the current loan balance some times referred to as UPB–unpaid principle balance
ORIGINAL BALANCE–is the original when the loan was originated
P & I–meant the amount of the monthly principle and interest payment
ORIGINAL TERM–reflects the # of months of amortization when the loan was originated.
REMAINING TERM–reflects the # of remaining months of amortization.
INVESTMENT TO VALUE–reflects the amount of money invested divided by the property value or BPO amount. We consider a good range to not exceed 65%.
LOAN TO VALUE–reflects the amount of the existing loan balance(UPB) divided by the property value or BPO amount. We feel the lower the better, definitely less than 60-65%. The lower the better. The lower the better the equity position in the event something goes wrong with the payments.
INTEREST RATE-is the amount of interest the payor(borrower) is paying.
EFFECTIVE YIELD-is what is your rate of return based upon how much one is paying for the loan compared to the actual remaining loan balance.
SEASONING-reflects how many months the borrower has been paying since the loan was originated.
PAYMENT HISTORY-is a record–a spreadsheet of the payments which include due date, paid date, late fees, taxes and insurance payments and multiple other items. As long as the borrower is current 11 out of 12 months, it is considered to be a good history. As long as the borrower pays within 30 days of the due date even though there may be a late fee charged, we consider that to be on time payments.
ACH-means the payments are automatic bank drafts from the borrowers account. As lenders we really like that typo of borrower.
PAYOR—another word for borrower
DODD-FRANK FRIENDLY–refers to the Dodd-Frank Act which was effective January 10, 2014. Any loans originated after that date require underwriting by a loan originator.
PROJECTED RENT–reflects what that typo home rents for in the area. We use that as a benchmark for the payor–meaning we like to see their total payments to be less than a typical area rental. They have to live somewhere. If rents in the area are much more than their monthly PITI, it is less likely the payor will default.
For additional information on due diligence go to this posting.
Go to our NOTE VAULT for our current performing note inventory.