EVEN get into why institutions have ceased ALL release of bulk REO
portfolios - just know because of TARP, the motivation of institutions
to liquidate, has vanished. Which is why you can't and won't, find
Secret Investment Tip:
There is ONLY ONE way to access the coveted distressed portfolios you
desperately seek; and they are NOT on this or ANY other site on the
There exists a secret method that only very few are aware of and fewer
know how to access it.
We have a separate page dedicated to educating potential QUALIFIED
investors.If AFTER reading this material you feel you are qualified and
ready to move forward quickly, please feel free to contact us.
Unless you can prove me wrong and provide irrefutable proof, I am the
only person I know who has discovered the ONLY guaranteed method of
acquiring bulk bank assets.
As a principal or DIRECT authorized principal representative, I will
share this information with you. If you are an interediary, don't
bother to ask.
Principals, you've got to have and prove you've got deep pockets to
play in this game.
to take a leap of faith and assume if you're
here, you already know what the alphabet soup phrase above is... BUT,
if you don't or are foggy about the industry meaning for the
abbreviations, I'll take a minute to give you some BG (BackGround) info
on them. Please
this site together to educate. The instruments discussed should only be
considered by those who have consulted with their financial advisor and
fully understand these topics.
dispell the internet myth
that "...large REO tapes of up to $1b are readily available."
"So...show me what you've got in a tape."
Ask yourself this: If you were the owner of a valuable asset, would you
throw it out on the
internet to see if anyone would buy it? I didn't think so.
(And BTW, stay away, waaay away from
ANYONE "advertising" or claiming they "have the product" you need or
are "direct with the compiler", etc., etc., etc., on ANY forum. They
don't; and they aren't.)
"protocol" which must be adhered to. If you don't yet know the rules or
think your're someone special to which such rules don't apply, have fun
wasting your time. Unless you're "hooked up" to the source as direct
as possible, you're going to be involved in the most hellalcious
exercise in futility of your life known as..."the daisy chain".
There are a
ways or methods in which to use these instruments to make money. Lots
Each instrument is a complex but easy to comprehend maze of
intricacies. As you read through this information, you will have
questions. Questions that we invite.
Before you begin reading, please refer to the disclaimer below.
Estate Owned". The liquidation of "Bulk" REO assets is typically
handled by an "Asset Manager". Most times internally to the institution
They will typically deliver
a pool ($10 Million to $100+ Million) of properties at 55% to 80%
(depending on area, even steeper discounts) of the true value including
fees. While the pricing has been about that percentage, getting to the
list of properties is another story. The reason the pools are elusive,
is simply because they are purchased by well positioned investors
before anyone "sees" the list.
Buyers must be ready to pull
the trigger at a moment's notice on REO packages, which means we need
to have our buyer's educated and well prepared. The REO process is
extremely competitive so "newbie" buyers/investors to the game will
have great difficulties in securing packages if they don't know "how"
the deals work and are structured which is where we come in.
The buyer/signatory MUST be
identified upfront on the initial note order form or letter of intent.
The seller's must know "who" they are potentially doing business with
from the start because of the U.S. Patriot Act so if we can not get
past this key buyer ID disclosure issue with involved
broker's/consultant's, etc., we can not move forward.
Buyer ID is crucial and the
first step as the seller will check their "watch" lists for certain
organizations, names and parties that they are prohibited from doing
business with under law. Secondary to that critical item is the new
"internal" watch lists the banks have in place due to the unbelievable
level of fraud occurring in the arena so the involved parties
requesting product for purchase MUST be disclosed.
Realistic buyers are a must.
We need to ensure we are working with buyers who clearly understand the
current market and price points.
Much of the frustration occurs when
large buyers with deep pockets puff out their chest and demand to get
to the front of the line to dictate what the seller will give them and
at what price point. They want high-end everything for little or
nothing. Yes, we are in a correcting real estate market but buyer's
must be realistic. This type of attitude and behavior will not fly with
the banks and selling sources.
These types of buyers/investors will never secure product and will
likely get themselves blacklisted. This is one of the "hot" topics with
bankers and private sellers right now. They are sick and tired of
arrogant buyers, uneducated brokers and consultants.
Financial performance - last
but not least is necessary. The buyer's MUST have their finances in
order and be able to prove it. Cash is king and cash buyer's trump
buyer's that use credit. Hard money loans from shakey lending sources
for newbie buyer's will not impress the sellers and will likely lessen
the buyer's chance of securing a REO or note pool.
We all must remember
at the end of the day the Seller decides "who" they will do business
with period. They are trading trust deeds for cash and they choose who
they will conduct business with. Unfortunately, the buyer's and
involved parties are not in the driver's seat on this one as there are
more buyer's than seller's right now. So let's all be clear on
that...the seller's are in control.
Performing Notes". Very simply, these are individual or "pools" of
residential or commercial mortgages. Once the borrower fails to meet
the promise to pay on the note, the note becomes "non-performing".
These instruments can be accessed via similar channels as REO
Are Collateralized Mortgage Obligations? Collateralized mortgage
obligations, or CMOs, are mortgage-backed instruments that make the
term of your investment more reliable.
Mortgage-backed securities, or
pass-throughs, as they are sometimes called, provide an investment that
has the security of bonds but with a higher yield.
Unlike bonds, however, you
never know when the home mortgages that back pass-throughs might be
prepaid, introducing a note of uncertainty to your investment.
The "mortgage" in collateralized mortgage obligations refers to the
home mortgages on which these securities are based. Like other
mortgage-backed securities Ginnie Maes, Freddie Macs, and the like CMOs
are based on the performance of home mortgage loans that are sold by
their lenders to an intermediary company.
This company packages the
loans as certificates that investors can buy. The interest and
principal payments on the mortgages go from the homebuyer through the
intermediary and then to the investor. That is why they are called
With other kinds of
pass-throughs, the performance of your investment depends on how and
when the homebuyer pays the mortgage.
CMOs are fundamentally different, in that they are based not on one
mortgage but on a pool of loans that are categorized based on the
payment period of the mortgages in the pool. In this way, CMOs seek to
limit the uncertainty that can be caused when mortgages are prepaid a
problem for pass-through investors when declining interest rates lead
many people to refinance their home loans.
They also spread the risk of
default among a number of investors. The mortgage pools that underlie
CMOs are divided into categories called tranches based on the repayment
schedules of the mortgages. Bonds are then issued on each of the
tranches, each with a differing maturity date and interest rate.
CMO bonds are issued with maturities of two, five, 10 and 20 years.
Coupon payments from the mortgage pool are paid to the bondholders for
each tranche while principal payments are applied first to the bonds
with the shortest maturity (the first tranche). CMO bonds are highly
rated; because they are often based on government-backed mortgages and
other top-grade loans, there is little default risk involved.
CMO bonds are issued by the
Federal Home Loan Mortgage Corporation (FHLMC), the federally sponsored
corporation that also issues Freddie Mac pass-throughs. CMOs are also
issued by other government-sponsored agencies as well as private
issuers. Some investors hold CMO bonds to maturity; they can also be
sold and bought on the secondary market, where their prices fluctuate
with changes in interest rates.
Now let's look at two
special classes of CMOs: companion bonds and PACs.
Companion Bonds and PACs
Collateralized mortgage obligations may issue special classes of bonds
that can either increase or decrease the risks involved in CMO bonds,
allowing investors to opt for increased security or the potential of
Companion bonds are a
special class of CMO bond that is paid off first when the underlying
mortgages in a CMO pool are prepaid. Prepayments tend to occur when
interest rates fall, so the payment rate on the companion bonds vary
with interest rates. As a result, companion bonds absorb much of the
prepayment risk in the CMO and display greater volatility on the
secondary market. The potential of higher yields is the investor's
reward for taking on these risks.
On the other hand, planned
amortization class bonds work to reduce risks for investors. Some of
the income from the mortgage pools that underlie PACs is diverted into
a sinking fund, a special account used to help pay off the PACs. The
availability of this sinking fund makes it more likely that the bonds
will perform as expected, except in cases of extreme prepayment
situations. In return for lower prepayment risk, PACs tend to pay lower
interest rates than other classes of CMO bonds.
The main advantage that collateralized mortgage obligations offer over
other kinds of mortgage-backed pass-through securities is protection
from the prepayment uncertainties caused by changing interest rates.
With Ginnie Mae and Freddie
Mac bonds, a drop in interest rates could cause the mortgage you bought
to be paid off early, shortening the term of your investment and
diminishing your overall yield.
CMOs offer a degree of
protection that makes the income they produce more reliable than
returns from other pass-throughs. This protection is not iron-clad,
however. Even a relatively low-risk PAC bond might suffer in the event
that plunging interest rates cause a rush of mortgage prepayments.
Because of their relative safety from mortgage prepayment, CMOs tend to
offer lower yields than other pass-through securities. However, they
still tend to perform better than other kinds of fixed-income
securities such as U.S. Treasury bonds. And default risk is low: CMO
bonds typically receive AAA ratings, largely because they are based
mostly on government-backed mortgages.
You can refer to a helpful
Now for the "Catch 22"..."The" Protocol.
That's just it...there isn't just ONE
Each seller has their own.
paperwork starts flying all over the
place - everybody wants "to be protected".
advice? Forewarn your clients ahead of
time that each seller has their own legal department which
means their own set of protocol. Which means thier own "Buyer Profile"
form and their own "LOI". In addition, your buyer will need to "proof
Typically called a "POF" or proof
of funds. A simple statement from the buyers financial institution
indicating they do in fact have the required liquid funds to close the
transaction. No account numbers necessary. If your deal gets this far,
it will then be buyer and seller on the phone hammering out thier deal.
So, just relax.
speaking of the seller...if you're trying to get next to them...It's
you have an exotic Italian car. The best mechanic in town
is the only
person you let service your car. In fact, every exotic car owner in
town wants him to service their car.
This many clients keep him extremely
busy. So busy in fact, they don't speak directly with him. They
make an appointment with his
assistant. The work gets done. Everybody's happy.