All Forum Posts by: Dion DePaoli

Sorry, didn't really understand what link to past in the video box. Resolved.

Well, I found this video made from CFPB no less. Pretty good summary video and links within the information part. Nice little change of pace to have a department make a summary video rather than leaving it all to up to finding and reading a summary.

K. Marie,

I didn't go back and reread the entire thread but from what I remember, there actually were deeper issues in this paperwork. Defects that could give rise to affirmative defense in foreclosure. What Bill is suggesting is to cure those defects by re-doing the note. The issue becomes complicated since the origination is defective so simply having an attorney do a modification to cure the defects may not cure the defects if challenged.

DF has put further requirements on the servicing of loans, which frankly no layman should be trying to mess with. So while the rule does not mandate the servicing of said loan, it puts forth requirements that likely will not be met or adhered to in a private setting. This is also aside from the state specific rules around the servicing of a mortgage loan without a license.

As an example of how not clear cut this is and how some of the advice to be 'firm and harsh' (for no better words), the borrower could argue they have sought relief which through conversations and delivery of documents, etc, etc seems like it could be easily proven. By then filing for foreclosure the Mortgagee (the OP) would be guilty of dual tracking which is expressly forbidden.

The approach mentioned, I am sure would be many folks same path, however that does not make it the legal and correct path. This is why it is CRITICAL to get the loan to a mortgage servcing company that knows what it is doing, as most layman do not.

Doug, while I agree the market has many new players coming and some going, I would argue this pricing frankly is not new or of a higher level. These have been pricing levels that I have seen since 2009. Downstream trades have seen relaxed pricing due to the dynamics of portfolio management but on a portfolio level of price, these are what they are. In addition to portfolio dynamics, managers have been able to raise funds which have come back to reality with expectations of return. The price of entry forced investors to come to terms with levels of return even though some investors may have believed they 'held out' for lower pricing to hit their hurdle rates. In 2008 to 2010 as many folks choked on NPN's, risk assessments where high and investors wanted adequate compensation for the perceived risk.

This same feedback has come from my observations and dealings as well as discussions and dealings with some of the top market guys like JP Morgan, WP Global and Citi. The portion not sold does add some insight as to the willingness for investors to bite off too much negative equity, the portion not sold had an LTV of 168%, however the sale was not transacted, so the Seller felt the price was too low.

The real barrier of entry is return expectation not the assets. Investors who hold out for 20% returns can find things to buy however they are in competition against those with cheaper capital constraints and thus find less and less product they can transact on.

Those clauses run with the deed so this will not work for that idea. In addition, changing the Manager or Member of an LLC does not do anything to title, the property would still be owned by the LLC. The LLC's owners would change. Selling an LLC to another person means the LLC and all of it's liability goes with it. Not too common for a single residential property. Not to mention, soliciting the sale of an LLC falls under securities laws, an unnecessary risk in and of itself.

The HML may not allow subordinate financing. Do not assume they will. In addition, the HML may have a different underwriting outlook on you using borrowed funds depending on what they look at in underwriting. Since the HML is the primary capital, you should sort these concepts out with the HML first so you understand what you can and can not do with the lender who provides you the majority of the funds.

It goes without mention, hopeful you are also reviewing the economic impact to your bottom line of borrowing additional funds, paying interest or return on them. Just because you can get more money, does not always mean you should use it.

Next step is to memorialize the verbal agreement in writing. Typically this is through a contract for purchase and sale. You do not want to order any vendor services or spend any dollars until you are in contract, since said contract will stipulate these things and govern the transaction. That is just prudent investing.

Let the seller know the agent who will prepare the contract is out of time and everyone must sort of wait for her to return. Perhaps see if you can reach your agent and have them prepare a contract to send over. Agents can usually be fairly quick and efficent and not infringe on travel plans too much.

If two investors (debt and/or equity) come together and form an LLC which is used to purchase mortgages, that join will be governed by the Articles of Incorporation and Operating Agreement of the entity. Within the operating agreement, powers, roles and rights, like any standard company, can be detailed. This is stand company structure stuff.

If one investor has a LLC which they desire for the mortgages to be placed into, the other investor must be cautious on how they join in as some manager of the assets. The act of negotiation between a borrower and the mortgagee requires a license. If you are a third party manager, you will need a license since you do not have an ownership interest in the mortgages.

Creating escrow assignments and allonges that are a thrid party to the ownership entity of the assets can be deemed to break the chain of ownership and is not a recommended strategy. This event can then create an affirmative defense for a borrower against foreclosure or can seriously affect the value of the mortgage in the secondary market under the same guise. Assignments and allonges must be received and assignments must be recorded as a function of sale which is usually demanded in the purchase and sale contract. In the idea of a NPN, this will also be required in order to substitute a plaintiff in a foreclosure action or other legal matters.

A debt investor who provides capital and then places a security instrument in place such as a UCC lien will have other issues in regards to UCC regulations. Collection per the UCC lien may not result in the ownership of the asset. In addition, the UCC lien may not provide powers to direct the assets if the relations go south.

These are some but not all of some of the issues. Creating shells to structure this type of transaction can void any warrant or create false statements in the representations of the purchase and sale contract for the loans. Or worse, be deemed to be selling a security with no license.

The OP lists a 'person', assuming it is third party and not family, this could be problematic if something were to arise between the two parties. Mortgage investing is not like real estate investing. It is pretty easy to veer off the line and have some serious impact on collect-ability, enforce-ability and partnership arrangements.

Not trying to scare, but I would suggest talking with multiple counsel on the matter and fully understand all of the moving pieces.

Just to clear up some concepts. Bankruptcy includes Chapters 7, 13 and 11 however 11 are not all that common. In the petition, the borrower either reaffirm the debt which means they agree they owe $X and will make payments moving forward or they surrender the property to the plan, which the Trustee can work to liquidate and pay creditors. This still has it's own barriers since title is encumbered and the sale will need to deliver clear and marketable title to a new buyer.

When Bankruptcy is filed an automatic stay of collection occurs for all creditors, secured and unsecured and the borrower is protected under Bankruptcy law during the BK plan. This means there is a very limited amount of contact a creditor (in mortgages that would likely be a mortgage servicer) can make.

If the borrower reaffirms the debt, they must make payments which can happen through or on top of the Trustee payment plan. Failure from the borrower (not the Trustee) to make the future scheduled payments are grounds for the creditor to seek Relief from the Stay of Bankruptcy. This essentially allows the Mortgagee to return to normal collection activity which may include foreclosure actions.

The Bankruptcy Plan can and does from time to time 'Cram Down' the mortgage debt. This takes place when the debt exceeds the value of the collateral. The cram down will retain the amount that is secured and any negative equity has to be moved into the Bankruptcy plan and must be paid through the plan. As you may imagine, this in most cases would create a type of balloon payment at the end of the BK plan or increases the payment required through the plan to a level not attainable by the borrower, so it has it's own barriers.

A properly discharged mortgage debt relieves the borrower of deficiency but does not 'cancel' or remove the mortgage from the property. So once a bankruptcy plan is complete and the debt is discharged, the borrower can still loose the property through foreclosure for default or other breach of contract. A normal foreclosure process must still take place. If the borrower fails to follow the plan, the BK plan is dismissed and the creditors can file and continue with legal collection means.

Due to some state laws in bankruptcy and mortgage foreclosure alternatives, yes a BK plan can force a Mortgagee to consider a modification. Forcing a consideration is not the same as forcing a final outcome.

Here is a nice article for newbie investors to read and understand about the REALITY of NPN loan sale pricing. The idea that loans trade for massively steep discounts is not completely true. To be clear, these are FHA NPN loans, so these types of loans may carry some insurance on the principal, that is not for the entire balance mind you. A previous sale to these pools was closed at 53.4% of UPB where FHA insurance was no longer in effect. We can only assume the insurance is still active in this trade, but we are not certain. In addition, we can be sure of the pools overall level of insurance and many concepts apply to what can be claimed and what the reimbursement is from FHA. The key layman idea, is it is not a full repayment of the loan and the loan must be disposition for a claim to be turned in generally, so it works similar to insurance on other things to that extent.

It is also important to note the other restrictions that come with the purchase, which is no progress in foreclosure for at least 6 months. Forcing the Investor and Servicer to try and find alternatives to foreclosure.

Since may folks have been what prices look like, I have inserted price translations based on the information given. Most of these pools have on average a 110%+ LTV and have trade for 60.0% of UPB (unpaid principal balance) or 66% of BPO (Broker Price Opinion or FMV). Other portfolio characteristics will have affected pricing which will include geography (judicial and non-judicial foreclosure along with eviction time and costs), some degree of foreclosure seasoning, previous servicing strategies, etc. So we can recognize those ideas in absence as influences of pricing, however this is also a sale for 8,000+ loans. This is good market insight and do not be so quick to shrug off the price indication it provides.

Hope this clears up misconceptions and manages some expectations and market price, this is reality contrary to what you may have thought or been told.

ARTICLE:

This is a slightly better than the previous loan sale in June, when the winning bidders paid on average 53% of the UPB.

The official results show that FHA rejected bids on two of the 11 loan pools at the Oct. 30 sale. The two pools had extremely low broker price opinions relative to the unpaid principal balance of the loans.

Pool 103 with 1,700 loans had a UPB of $330 million and a total BPO of $196 million. [LTV = 168% - did not trade at 60%] FHA might have been testing the market with this offering and the bids did not meet its minimum requirements.

DLJ Mortgage Capital Inc. successfully bid for the 105 and 106 pools. The 105 pool had a UPB of $148 million and a BPO of $133 million. [60% UPB = $88.8M or 66.67% of BPO, the LTV = 111%]

The Credit Suisse subsidiary offered to pay 61.5% of the UPB or 68.5% of the BPO for the 105 pool. [LTV +/- 112%]

Overall, 17 companies bid for 10,600 FHA nonperforming loans on Oct. 30 and the agency sold 8,172 loans. Servicers that put those FHA loans up for sale have generally exhausted all loss mitigation options.

However, the successful bidders cannot foreclose on these loans for six months. This restriction is designed to give the new servicer a chance to restructure the loan and keep the borrower in their home.