Collateral assignment of mortgage David van Horn

17 Replies

@Dave Van Horn I just watched your podcast on BP and was quite inspired. Congratulations on your many years of success. I have a rapidly growing portfolio of performing notes and liked your suggestion of collateral assignment of mortgage to free up capital. 1.Could you recommend any banks, funds , or institutions who would be interest in providing capital with this collateral ? 2. What percentage of UPB is common for them to loan against ? Do they take the servicer’s recent statement as verification ? 3. What would be a fair typical rate the investor would offer ? Your reputable advice is much appreciated.

There was an error in the post

Just listened to David’s wonderful podcast and his suggestion for collateral assignment of mortgage

Wanted to ask @davidvanhorn if he could suggest any funds , banks , or institutions that would be interested in loaning against my rapidly growing portfolio of performing notes.

Much appreciated.

In my day when I did this we called those hypothecations.. and our bank would routinely loan 50% of our UPB.. and the hypothecation was done through the collateral assignment to the bank.

and then when we moved into HML we have nice size credit lines for this

we made a new origination and the bank took the collateral assignment as to 56% of ARV or appraisal.. that's how most of us HML did it pre 08.

it was great we borrowed from the bank at 6 or so and lent out at 15 to 20 and made the delta..

you get big enough lines and its pretty cool business. 

those kind of lines I think are coming back for the bigger HML and crowdfunders maybe a little different set up but same theory.

@Mike Hartzog   correct... in our world 2nds simply did not happen all first trust deed or mortgage lending and all collateral assignments of said.

now my facility at Umpqua 4 million.. they would not actually record the assignment they just held it and we gave them an alonge'  they would only record if they were going after the asset.

Riverview and Columiba community were I had the same facilities only larger they recorded everything so the transaction was a little more cumbersome

and of course we had to close the loan with our own cash then back fill.. much like a conventional lender who does table fundings then sells in the secondary market..

but once the machine was up and running it went well but it took staff to run.. that's for sure.

@Jay Hinrichs thanks so much for the information. Are those programs still avail ? Would you have any contact information of someone I can reach out to ?

they are regional  my banks were all right here in Oregon I know they only do it for loans in their footprint you need to check with NEW YORK banks or where ever it is you want to lend.

@Jay Hinrichs Thanks Jay.

My portfolio is diverse. Several states and growing. I guess I would need to reach out to multiple local banks.

Thanks for your advice. Much appreciated. 🙏🏽

Thanks @Anthony Dadlani ! Glad to hear you enjoyed the new podcast episode.

And Jay's absolutely correct. With Institutional money expect around 50% with 1st liens. They want equity and appraisals, so it usually doesn't make sense for them to do it with 2nd liens. And it is more common with regional banks.

That being said, when I talk about Collateral Assignments in the podcast or my book, I'm usually talking about it in regards to 2nd liens where you utilize private investors. That's what we did years ago when returns on 2nds were generally higher and our private investors were making in the 10% to 12% range...but it would probably be lower today.

Originally posted by @Dave Van Horn :

Thanks @Anthony Dadlani ! Glad to hear you enjoyed the new podcast episode.

And Jay's absolutely correct. With Institutional money expect around 50% with 1st liens. They want equity and appraisals, so it usually doesn't make sense for them to do it with 2nd liens. And it is more common with regional banks.

That being said, when I talk about Collateral Assignments in the podcast or my book, I'm usually talking about it in regards to 2nd liens where you utilize private investors. That's what we did years ago when returns on 2nds were generally higher and our private investors were making in the 10% to 12% range...but it would probably be lower today.

Is this also what some note buyers call buying a partial... or a variant of that ???

In our day and of course I have to go back into the tules.. but when I did hypothecations it was a little different scnarios .. HML facilities are pretty cut and dry.

but the borrowing against our notes was when I was in the Land and Timber business.. we would log a track  sell it to a home owner on contract but it would take a year or two for them to go through planning get their house designed etc.. and then when construction loan was ready we would get taken out.

Generally when we did these the logs paid for the dirt so we owned the property free and clear and would sell the parcels for 150 to 300k ( our profit)  but could not run our machine collecting 2k a month in a payment so we would borrow 50% against them at our bank still positive cash flow and had the money to buy another timber track.. as these were generally all cash purchases..

I suppose those that do the brrr with owner financing could run the same model.. ???

this is what I love about real estate and this thing we do... we have license's to be as creative as we can be.

and right when we think we have done it all there is something else that we learn.   

@Dave Van Horn thanks for clarifying.

I guess private investors maybe a good source. I guess it’s simple enough to just file the document in the county as you stated on the podcast.

1.What happens if the note pays off early ?

2. Typically is the promissory note to pay investor lined up with the due date of the collateral note ?

Best regards,

Originally posted by @Anthony Dadlani :

Dave Van Horn thanks for clarifying.

I guess private investors maybe a good source. I guess it’s simple enough to just file the document in the county as you stated on the podcast.

1.What happens if the note pays off early ?

2. Typically is the promissory note to pay investor lined up with the due date of the collateral note ?

Best regards,

if note pays off early who ever orders payoff demand is going to have pulled title they will see your assignment and then will contact that bene and order a payoff.. they get their money you get the delta.. as your in second position basically.

Now this is were it can get tricky if fraudsters get in this and don't record the assignments and the note holder who borrowed against it does not pay of  the underlying.. I have seen that in my day.. that is a mess.

you make the due date correspond or be earlier that the note your borrowing against.. 

@Jay Hinrichs Thanks so much for the information. 

So just to be clear as an example, assuming the collateral assignment of mortgage and note has been filed.....

If I own a note valued at $50,000. I collateral assign it to an investor for XYZ amount..50-60% of UPB .... In 5 years the payoff amount is $45,000....Who will get the payoff ?  Would it be me.....or would it be the person I assigned the collateral to ?

A bit unclear from your explanation. 

Best regards, 

@Anthony Dadlani   well when I did this.

I would make sure my note payment was higher than my payment on the borrowed funds so I made the delta.

its pretty basic you borrowed 25k against your 50k note your 50k note pays off 45k since it paid down principal hopefully your 25k you borrowed your payments are set up to pay down some of that principal  so lets say the pay off to your underlying is 22k.. they get 22k you get 23k..

everyone keeps the payments they got during the term ...

for some reason you don't pay your 25k note buyer they can then foreclose and wipe you out..

or if it bids higher than their 25k at trustee sale or sherrifs sale depending on mortgage state or deed of trust state.. anything over whats owed on the 25k goes to you as next in line.

@Jay Hinrichs okay understood. So they get a direct payoff as well. In essence they become a co owner of the note.

We don’t receive the full payoff and then payback the loan to the investor. They provide a payoff number/statement just as we would to the title company or closing agent.

And yes of course the amount should be less for the delta.

I see the collateral assignment of note and mortgage document on line.

Is there also a release of collateral document in the event we prepaid the loan early to the borrower ? Just trying to get all my documents together.

Would certainly like to offer this to our investors going forward.

Best regards,

Originally posted by @Anthony Dadlani :

Jay Hinrichs okay understood. So they get a direct payoff as well. In essence they become a co owner of the note.

We don’t receive the full payoff and then payback the loan to the investor. They provide a payoff number/statement just as we would to the title company or closing agent.

And yes of course the amount should be less for the delta.

I see the collateral assignment of note and mortgage document on line.

Is there also a release of collateral document in the event we prepaid the loan early to the borrower ? Just trying to get all my documents together.

Would certainly like to offer this to our investors going forward.

Yes its just same recon deeds or satisfaction of mortgage that is used all the time.. this is really not that complicated but a nice tool to leverage up..

@Jay Hinrichs much much appreciate you taking the time out to answer my questions. Have a great Sunday. 🙏🏽

@Jay Hinrichs I don't want to speak for @Dave Van Horn but I don't believe they used partials. From what I've read and heard from him I believe they just used private investors for the collateral assignments in the way that you used banks with the note as collateral in case they defaulted.

Partials are more for selling a certain number of payments to someone (sorry if you're already familiar with this) whereby if say the borrower owed 100 payments the lender could sell the first 10 payments for a lump sum. The person who purchased those payments would receive the payments from the borrower and after those payments are completed the next 90 would go to the original lender.

In the case of partials the house is collateral whereas with what Dave was doing the note was the collateral.

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