REMIC, Discount (Non Performing Loan )Note Purchaser

Business overview:
The overall business model for REMIC is to purchase low-end NPL’s in bulk, with the intent to modify as many as possible, and to locate and convince the owners to deed back the remainder. As mentioned before, if they need to foreclose, they will sell the note. REMIC just started buying pools of this size about a year ago; their first such pool was purchased with a lender partner that ended up being totally unworkable, and who never allowed them to execute on their business plan. We have not ever included that pool in our analysis of their performance. Their oldest pool in practice consists of 321 notes purchased from GMAC last May. It is important to observe that REMIC has been developing their expertise, methodology, resources, etc. since they began to work that pool. Especially with this pool, things have taken longer than anticipated, but they still will make an excellent return. REMIC likes to buy loans where the house can be rented, or where the mortgage payment is less, than competing apartments in the market. Thus, there would be no practical reason for the owner to not agree to a modification, as for them to move elsewhere would cost more than to stay in the house. REMIC has a very explicit business plan to modify the notes such that the payments are more attractive than any other alternative, and they seem to be quite successful with this. This is what contributes to the lower value profile of the houses. Also, from a REO sales perspective, houses that can be sold at a price that easily is rented and cash flows are relatively saleable even in soft markets. They feel this mitigates the market risk inherent in the transaction. In point of fact, in our experience the limiting factor on their loan mods isn’t the payment, it’s the value of the house; they could keep the payment in line, but still end up with a loan with too high of an LTV to sell once it is seasoned. Their answer to this is to agree that they will enjoy the exceptional return while they own the loan, and then if need be, they will mark the loan to market when it’s time to sell it; in these cases, they will make a significant profit relative to their purchase price, but not make quite as much as they could based upon the borrower’s payment REMIC’s goal in 2011 it is to acquire approximately this plan a reality. Refinements to our specific plans for 2011 will be made and future plans will be 3,000 loans with unpaid principal balance of approximately 300,000,000. articulated based on that continuing assessment of the market place.

  Business definition / Strategic mission:

To acquire non-performing loans at a discount and then convert those loans to performing/modified loans, or to REO by having the owner deed the house. This creates significant value by creating more liquid and saleable assets.

  Core strategies:

The overall strategy is to use the company’s expertise to evaluate, buy, modify and/or deed in lieu non performing residential notes bought at a deep discount. The company targets the notes that most investors do not want, those

on very inexpensive homes. Although that entails more work for the same dollars, it also provides a degree of risk management because those houses are attractive not just to homeowners, but also to investors who buy them to rent. Because the investors often pay cash, this limits the company’s exposure to the mortgage financing markets in order to sell their REO. Since the mortgage payment resulting from their proposed modifications is lower than rent in area apartments, the homeowner should be motivated to remain in the house as that is less expensive than moving elsewhere. Again, this mitigates the risk of the transaction.

  Products:

REMIC basically has one product, which is to acquire pools of residential notes at deep discounts.

  Origination / underwriting process
The acquisition of distressed assets is a dynamic and highly competitive process. It begins with receiving a tape of the assets for sale containing much of the information to make a bid on the assets. Within 72 hours of receiving the tape REMIC, must evaluate the portfolio from an analytical standpoint, and submit an “indicative bid” by the end of that period. If REMIC’s bid is accepted then REMIC will enter into a purchase and sale agreement where REMIC will conduct its final due diligence, typically within 10 days REMIC will conduct its final due diligence including title, determining the status of junior liens (tax, HOA, mechanics liens). Valuation includes ordering Broker Price Opinion (BPO) and/or an Automated Valuation Model. The due diligence that REMIC performs includes but is not limited to: determine the estimated value of the property, whether vacant or occupied, monthly rental value and assess what needs to be done to get the property ready for sale. A review of the “master loan agreements” is conducted to check for compliance with RESPA as well as other requirements. After all the above is complete, a bid is submitted, and if accepted the transaction is closed. The entire process takes a total of three weeks from start to completion.

  Exit strategy: REMIC has two primary exit strategies, and one fallback strategy.
1. Modify Loans. REMIC’s first choice is to take advantage of their low basis in the loans to offer very attractive modification terms to the current borrower. This includes a decrease in the principal balance owed, in addition to a lower rate. In virtually all cases, REMIC can offer homeowners a lower monthly cost than rent anywhere in the area. 2. Deed in Lieu. If the borrower doesn’t under any circumstances wish to live in the house, or has moved out of town, then REMIC has developed extremely effective strategies to track down, and convince such borrowers it is in their best interest to simply turn over the keys and be done. Unlike California, most states allow a judicial foreclosure in addition to taking back the home, and REMIC can threaten borrowers with the cost of litigation, impact on their credit, and so forth.

3. Foreclosure. REMIC does not tend to initiate foreclosure proceedings, as it simply takes too long and costs too much. Except in cases where such proceedings were initiated prior to them buying the note, REMIC generally will sell the note in a bulk package, generally for their net cost in the loan, maybe a bit more, maybe a bit less. Their strategy is to make their profit on one and two above, and simply break even on the limited number of loans that must be foreclosed upon.

  Target customers :

REMIC buys notes from the major mortgage companies, to include Citi, GMAC, and so forth.

  Marketing strategy :

They have spent the past year or so building relationships with these sellers, and at this point have built a level of trust that allows them to sometimes avoid the need to enter into competitive bids, but rather to be allowed to be the sole bidder on certain specific types of packages, and as long as their offer is considered reasonable, they can get their price.

  Loan servicing / default management

REMIC has a joint venture with BSI for servicing their notes, whereby they staff a branch office on behalf of BSI for the purpose of servicing their loans. BSI then can provide management, licensing and expertise; REMIC provides staff and space in which to operate. For the most part these loans are special serviced as they are in default; however, once they are modified, then they are more routinely serviced until they are seasoned enough to sell or refinance. REMIC directly works with the borrowers to modify the loans and/or to obtain a deed in Lieu.

Sign up to vote on this title
UsefulNot useful