HP, Bank Of America Wells Fargo Fargo, Senate discussed on The Money Advantage Podcast
Offer them fair transparent easy to understand solutions that can be Resolve to resolve these consensually on in an expeditious spanner. Yeah that makes a lot of sense and I really like how you shared the example as well. I think that makes it much more understandable to somebody who maybe has not faced foreclosure and is not in a position of understanding what that might look like and at the same time. I think we can all understand that people have needs in in different cer- certain situations that you find yourself. Your your needs are gonNA look different. Your options are probably really limited and if you're coming in and providing an additional set of options that something looks really simple and they can move who for with whatever is best for them that Definitely can be a win-win so you're winning because you are clearly profiting. In that situation. The homeowners can win if they're are in a position of not having to be in foreclosure or bankruptcy if they can avoid that and then the investor as well as winning so again. I know we're going to kind of piece together. They're all these different parts. But thank you for walking through that example and so when did you guys begin a HP in its first stage we started in two thousand eight. Oh you did okay so so. It's twelve years old at this point. Wow Wow that's awesome awhile. You guys have gone through then the great recession and you've come into into a different housing market as well. What does that look like in terms of how business works for you with the boom and bust cycle of the housing market? Sure sure we will do better in a bust. I mean there's more need and assets were sold. These loans are sold at greater discounts today. Hey It's tough to my Just share the example where we buy that loan they oh hundred property values fifty. We could buy that loan at twenty but over the the last few years. Those prices have crept up even on the lower income. I'm even on those Home security are in lower On those mortgages ages secured by homes enlarge neighborhoods which typically the Big Wall Street funds don't want which is created the created the opportunity because they they see it as a hassle litigation Gatien risk. It's easier just to Salome and let someone else resolve on than I mean the rallies we've probably make five ten thousand on our average deal so big Wall Street find saying oh great you can make eight thousand dollars. Congratulations George. They don't care about it. They're looking makes one hundred on a on a on a deal and the these crumbs that that we buy but those crimes have become more expensive so now twenty five that that same deal that I described us buying for twenty now. It's probably more like twenty five. Maybe even creeping up on thirty thirty just because the market is so competitive there's so many buyers it's considered more predictable and there's so much cheap capital out there to buy these things that there's the prices have gone up with real estate or almost any type of asset in today's market So we've done a couple of things. One is in order to do one of our challenges for the last Ever since we've been doing this was servicing in most states require that a license mortgage servicer Is the one that has all the contact with the homeowner in terms of talking about the modification presenting the options and so we would always quarterback different servicers and none of them were very good so we went through nine. Different servicers Over about a decade and finally the last one I became so frustrated with that we said We're GONNA WE GOTTA start our own service. So that's the only way that we can execute our strategies with most effectively. Because what would happen is most most lenders still WanNa get to your tax returns. Bank statements recent recent paycheck stubs a hardship letter all this stuff and so now ninety percent of clients want that and here is saying that we WANNA make it much easier streamline and even though they say they could do it. The actual execution was problematic. So now we can control it so we become a service or licensed in forty seven states. Were very close to getting The final three states nationwide. We service our loans. We also service a third parties and so while this market this kind of competitive added market exists. We are building out this nationwide servicers so we will better better equipped to execute strategies in a more or scalable manner once the next downturn hits so that that's that's what we're doing right now and where we servicers become a now generate fees not just from our loans but from a from those by third parties so it insulates us a little bit from the if the downturn people talking for the last twenty only four months that it's GonNa hit soon and it might ob- if it doesn't hit for another thirty six months are are buying opportunities would be more challenge. So this is a way to earn money in the interim using what we're up so in terms of being a mortgage service provider licensed Comoran service provider. So does that just allow you then to receive ongoing fees is that. What's the difference for somebody like me? WHO's not in the mortgage industry? Sure so if you have a mortgage anyone out there who has a mortgage. They make a monthly payment and it could be to Bank of America could be two nations star. Could be to Mr Cooper any of these. Any of these companies companies are typically servicers lenders have servicing divisions and they Those services collect a small monthly fee. Caught thirty forty fifty dollars off on average To collect those payments each month and those payments permitted to whoever actually owns the law and so could be a a hedge fund could be a bank could be I'm Any type of could be a private party in some cases that actually owns the loan so they are though collect. Call it a five hundred dollar monthly payment. They'll take thirty dollars a service of take it and then the Senate for seventy two the investor so if the if the mortgage is our current aren't paying it's fairly easy at it's fairly inexpensive. It could be less than thirty dollars but as Fall behind as they fond foreclosure even a bankruptcy. The cost of service become a much more significant and the amount of anthrax can do that. effectively becomes much much greater. And so that's what we focus on we focus on buying and servicing loans That need need to be resolved. They aren't just paying we did. We do have loans pay. That's the minute that a much smaller number than what launch at our our which which option when when you present people which option do you see. People take most offer to if they if they want to stay in the home. It's the modification more or less a third time if they don't WanNa stay the homes already Bacon they'll take the blue And then there's a small sliver that will do a lump sum settlement and then the rest don't agree to any type of resolution they either ignore it reached. Can't get a hold of them in the end up going into foreclosure. Sometimes they filed bankruptcy Nkosi so third that was gonna be my next Question about how it affects a person's credit rating the they simply get settled for less on their credit rating. When the yeah so it depends on the service or if you service with servicer that reports to the credit bureaus Bank of America Wells Fargo Fargo anything nation? Starting to the major ones they will reports the credit for and they'll typically reported as I'm settled for less than full amount owed as an example We don't report credit bureaus We respond if someone we get a verification a mortgage like someone's trying to refinance We don't we don't report and that's fairly common for many of the special services what were called when we focus on the on the loan center in Default. Let's can we dive into the actual investment. You know that actually invest and I you know you. There is a minimum of one hundred dollars. And you know it's kind. I don't like the way the political scenes going now. You know they raise more money for people that are giving like twenty dollars twenty five dollars not these huge. Mainly swazis wanted to stay off the radar D- sauce fourth but So it sounds like a great way to Raise money but the other thing you know. I'm even save Lewis with a recalled e. three wealth and everybody's focused on fees fees fees fees. So I'm sure you have some management fees. He's a come in this. And what are the challenges. I will allow you to answer how the whole thing works German. I'd I'd like to talk to you about some of the challenges coming forward like maybe rising interest rates not enough properties to actually find. And if that money's GONNA sit idle. Oh Hey you know how are you going to get a return back to your investor share Questions the first one is how do we. I'll give you the evolution which are probably Provides insight site. It answers to some of your questions one. When we first started we started with a head? We first BOUGHT LOANS ONE One by one one with investors investors with partner was with private investors would say hey. I'm I'm in. They give a fifty thousand dollars one hundred thousand dollars by a loan or two or three and a by that quickly became as we scaled the came. unwieldly it's tough to manage a whole bunch of individual relationships also. We don't always win. If if we buy ten loans will probably win on eight okay and then we may lose on one or two. So what was problematic was. Hey we had some big wins wins and then there's a couple of losses. Now what am I gonNa do now. At that scale I simply covered Invest their money back and got a a modest modest return And we take it out of our cut on the winds but we created it so they the this directed us to to the best option here was to create a fund so those ten loans are in there. We went on eight. We lose on ten. All the investor share in the in the in the rewards and we were originally they set up as a hedge fund in our minimum is two hundred fifty thousand dollars and it was accredited investors only mostly back then. We couldn't do any marketing being so we were simply introduced to. We have to go to friends and family. And then they're at people they would introduce us to In order to raise money so the one second just for our listeners. One of the reasons you could not advertise because of the credited investor. Her rules exactly people that are wondering that You you can and you won't see that out there in the industry because You have to make sure are these people are accredited investors for the SEC. Now there's been some loosening than I think you might be like a regulation a plus a plus. So we've evolved. Aw Yeah exactly. So we started at A. I think it's a Regmi offering and that was you know ten years ago and we There was no general solicitation. It was much more kind of if I talk to the media if I talked to. You couldn't even tell you what returns are I could just say. Hey here's our strategy the very very loosely. But I heard about something in two thousand thirteen and early two thousand thirteen online. I saw this company that I was raising money online for real estate investments using crowd funding. Now I never heard of real estate crowdfunding in I thought this. I think something's wrong here like this. Either they don't know any any better. This is some kind of scam But I did a little research at found out that they.