Anyone heard of Hedge fund buying Jumbo Notes - One at A time?

Question

I came across this website:

http://assetadvisor.mfgcapitalgroup.com/p1.html

I talked with John Frazier of the above company. Seems to be a reputable company but the claims are too good to be true. So, I want to see if someone from this awesome community has dealt with this company before I spend some money with them.

Here's the goal: we have a homeowner who wants to sell his house but he only has 90 days before the house is auctioned off. Value of the house is $950K, loan is $860K but he has not paid his mortgage for more than 2 years now. Shortsale is possible but given that it takes 6-12 months to do a shortsale, the 90 day-period prior to auction is too short.

John approached me about his hedge fund that can buy notes - "one offs" - meaning one note at a time versus in bulk - provided the unpaid balance is $600K and above (or a jumbo loan).

The idea here is get the hedge fund to buy the note at a discount and then I can buy the note from the hedge fund. Once, I control the deal, I have flexibility to let the owner stay there or resell the house.

So, has anyone here on BP experienced buying notes "one offs"? If so, how do you suggest I do it in this situation? I tried buying the note directly from the bank but given that this bank is a large bank, I was given the runaround and the lower-rank employees who answer the phone say that they don't sell notes.

I am willing to partner with and share my profit on this deal with anyone here who has ACTUAL experience buying Jumbo loan/note from a bank (please, do not answer if you just heard it from someone...or you read it from a book, or worse, learned it from the "gurus"). Thanks!

Wendell De Guzman · Answer

Thanks @Dion DePaoli. I appreciate your long and detailed response as always. I am skeptical of these companies which claim they can buy the note - one at a time.

The homeowner/borrower is OK with us buying the house. We have the funds to do that but we need to negotiate a price LOWER than the current loan balance. There is no need for a license since we're buying the house.

We can just wait to buy it the auction (3-6 months from now) as @Bill Gulley said or just do a shortsale as @Wayne Brooks suggested.

Dion DePaoli · Answer

I glanced at the website and read through the post. A couple points. A "One Off" is simply one asset trading by itself and not in bulk (more than one). It has nothing to do with to who or from who. One off is slang for one at a time.

This company's website has some miss information. Jumbo loans are indeed sold in the secondary market all the time. Jumbo loans are any loan above $417k in most areas and $625k in select areas called high priced areas. Jumbo loans like all other residential loans can be put into securities or held in portfolio's. The company's website seems to try and make them sound like assets that are always held in portfolio and somehow then having more of a propensity to trade in the secondary market. Not really true and they skip over important easily understood details.

The company's site talks about purchasing the loan and then offering a 12 month "bridge loan" to the borrower where the company may help them refinance. This is majorly problematic and leads me to think this is a cloud of smoke and they have no idea what they are talking about. If the company buys a 30 year fixed rate mortgage it does not magically become a 12 month loan, it would have to be modified and signed by the borrower. They stepped into the shoes of the mortgagee on the borrower's note. To force change an amortization on a distressed loan from 30 years (or what ever is remaining) down to 12 months is not going to be a solid practice idea. This creates a balloon in 12 months which is viewed as a type of borrower hardship. Two or three months ago they struggled to pay a monthly payment and now you wan them to pay for a balloon? I hope when I say it like that it sounds as stupid as it is. I don't know what type of borrower would ever agree to this with any remote understanding of what it means. As such, borrower's who do get taken advantage of this would have affirmative defense grounds. Maybe even some predatory lending bite back. This is a pretty big, "they don't know what they are talking about" mark in my book and I discount their entire operation to null because of it.

In the OP, the plan is to have these guys buy the loan so the OP can buy the loan from them. This presupposes the loan will sell for a discount and the discount will be suitable for two different parties to get involved and make some type of profit. I don't see that as happening here. The loan is roughly a 90% LTV. The loan is in what sounds like a quick non-judicial state. The bank, IF they were to sell would have some pretty high demands on the level at which this trades. Close to 85% to 90% of the UPB. Bear in mind you already have 10% or $100k to pay for costs of enforcement and collections. No real reason to discount too much further further. Additionally, I don't see the benefit of selling the loan to begin with for the mortgagee. If the owner is a big bank, then this bridge company has no better chance than the OP of getting a deal done. The OP already failed. They are not some widely known firm, despite what they may claim. So the issues the OP says he is having will be experienced by all other firms attempting to do a reverse inquiry to purchase one single loan. It is tough, very tough and boarders on impossible at times to find one single note and reverse into the owner to make a single sale.

The company here doesn't seem to be a hedge fund. Not in the typical Wall Street definition of what a hedge fund is. Commonly layman use the term hedge fund and really don't even understand what they are inferring. This is one of those cases. While I don't know the company or the owner but I do know my opinion, I think this company and it's plan to purchase discounted jumbo loans with equity to turn them into bridge loans and force a borrower to refinance in the short term is a horrible operational idea as it is almost impossible to gain any economy of scale. One that would seem to come from someone who is not all that tapped into the actual market but rather an outside spectator trying to devise some scheme with limited knowledge who then sells the plan to folks who know as much or less than him. The success rate of this plan would flirt with zero if not be negative for it's legal issues that could arise.

Wendell, you have misconceptions over what this all means too it seems, unfortunately. If the loan trades to the company and then to you, you have no profit to share. You own a loan which has a borrower who is not paying. Where would you share profit from when there is no cash flow or profit? You can not force a borrower to sell their house. You can not force a borrower to refinance. You can not force a borrower to agree to an unfavorable modification. All you are entitle to is what is spelled out under the note. I am only guessing you need a partner to come up with all the funds. Likely a partner who knows this market would have to provide all the funds and would end up driving the deal through disposition, who what value is the finder here? No offense, but you don't control this asset, which is the mortgage, at all. To some extent, your interaction with the borrower to this point could be more of a risk and liability as you may be perceived as working with a borrower on modification terms or negotiating with the mortgagee and borrower without a proper license. So in that regard, the cart is in front of the horse here and sort of the plantation.

In my experienced opinion buying many loans from various counter-parties including banks, investment funds and other institutional type sellers, this plan on this asset is more of an exercise in futility than anything else buy both the OP and this company. The owner should list their house and ask for an extension of time from their mortgagee since they have equity, this would be in the best interest of the mortgagee and borrower. Get away from talking to this borrower about their mortgage, you do not have a license. The other company plan, I would simply write that off to pie in the sky thinking with little real world experience. Good luck.

Wayne Brooks · Answer

@Dion DePaoli will have better info.

Wayne Brooks · Answer

Not an experienced note buyer, but I can tell you "one offs" are not when a fund buys one note at a time from an institution. "One offs" are when the fund buys a pool of notes, then resells them to guys like you and me, one at a time. Also, buying a specific note, a reverse inquiry, is harder than buying the pool and it's tough to get a targeted note at a discount you want. Also, we do many short sales where we have to go to court and get the sale date extended in order to complete the short sale, assuming we have it under contract, the owner has submitted all the paper work and we have some type of verifying communications from the bank. Your specific jurisdiction may be different.

Account Closed · Answer

Have the hedge fund buy it at auction and then sell to you.

Joe Gore

Anyone heard of Hedge fund buying Jumbo Notes - One at A time?

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