Buying REOs, Non-performing mortgages or performing mortgages has been very challenging for most investors over the past year. The United States government has caused much of the problems in the market. Both sellers and buyers of these toxic assets have not known what to do. Each wave of announcements from the government brought new expected changes and uncertainty into the market. Most buyers and sellers haven't know what to expect or what they should do. The banks didn't know whether to sell their assets or hold on to them. Washington Mutual waited just weeks before their collapse before they made a major effort to liquidate toxic assets. It was too late.
Now the US Treasury is finally in a position to help the marketing of these toxic assets. On July 8, 2009, the US Treasury announced the members of their Legacy Securities Public Private Investment Program (PPIP). They have another program called the Public Private Partnership (PPP). They have not issued a press r elease on this program but it is now up and running. The members of the PPP are now in a position to begin assisting buyers of both residential and commercial REOs, NPNs, PNs and many other toxic assets.
Foreclosures are still going strong, buyers for REOs and mortgage notes will be needed for years to come. In May 2009, the number of bank-owned properties nationwide increased by more than 65,000. This brought the total number of bank owned properties to 770,999, according to RealtyTrac's most recent data.
60 Minutes, ran a show entitled "The Mortgage Meltdown" on December 14, 2008. Investment Fund Manager Whitney Tilson stated that we are only half way through the mortgage meltdown. Tilson said the outstanding Alt "A" and Option Arm loans are over one and a half (1.5) times the size of the sub prime market. Based on current default rates, Tilson predicts a 50-70% default rate on Option Arms after their interest rates adjust. Another expert predicts 8 million for eclosures over the next 4 years.
The Treasury has made it clear that they are worried about the ability of US banks to withstand another major crisis. They know that this new round of mortgage defaults is coming. According to my sources, the Treasury isn't just providing friendly assistance, they are requiring the liquidation of toxic assets. If a bank accepted TARP money, the Treasury is requiring them to sell their toxic assets. If you are a buyer, this will benefit you.
Many buyers have experienced having their market rate bids turned down by a bank. As an Independent Consultant, I have seen many legitimate bids turned down by banks. I have even seen banks quote a target price and then turn down bids that met or exceeded their price. I hear the Treasury intends to put a stop to this. My sources reveal, under the Treasury's plan, toxic assets will be sold at fair market prices. A custom portfolio will be compiled meeting the buyer's specification. Buyers will not have to deal with portfolios that have been shopped around to many different buyers.
In addition to the toxic assets of private banks, the Treasury must oversee the liquidation of the toxic assets acquired by the FDIC. This year there have been 69 banks that have failed. Most certainly, many more will follow.
If the Treasury's PPP works as envisioned, investors should expect the following:
1) Acquiring custom compiled pools that meet their desired specifications.
2) Buying pools meeting their desired investment level.
3) Obtaining pools at fair market prices for toxic assets.
4) Eliminating the tremendous investment of time and energy seeking sources for toxic assets.
When dealing with the Treasury, an buyer must remember they will not be dealing with the Treasury itself but one of their Partners. There will be no monkey business tolerated from buyers. A buyer must be willing and able to play the game according to the Treasury's rules.
Much will be expected from the buyer but a buyer will also have much to gain. First of all, a buyer must have the required capital. They will not be able to hide their identity behind a mandate. And each buyer must be prepared to take the following steps:
1. Most likely the buyer will be working with an Intermediary Consultant. It is the intermediary consultants responsibility to bring qualified buyers to the Legacy Partner. They further have the responsibility of carefully screening the buyer and familiarizing the buyer with the required protocol.
2. The buyer will need to sign a compe nsation agreement to compensate the intermediary consultants.
3. The buyer will need to sign a Non-Circumvention Non-Disclosure (NCND) agreement with the intermediary consultants.
4. The buyer must be prepared to make a minimum purchase of $5 million. Buyers able to make monthly purchases at this level will be given first priority. There are a lot of assets to liquidate.
5. The buyer must submit a Letter of Intent (LOI) and Executive Summary / Profile.
A) The LOI must be on company letterhead. This LOI will identify your company and principle. It will specify the means by which you will provide proof of funds (POF). It will identify your bank, the bank manager and his phone number. It will include what you intend to purchase, how much and what criteria you are looking for.
B) Your criteria will include the size of pool, region, range of LTV, minimum FICO, preferred origination dates, maximum or minimum loan amount, property types, etc. The purchase price will vary depending on your specified criteria.
6. You need to provide Proof of Funds.
7. The buyer will be provided a price quote based on their criteria.
8. The buyer will have specified time to determine if the price is acceptable. The specified time will most likely be 48 hours.
9. If the price is acceptable, the buyer will enter into a purchase agreement. A final asset list will be generated and incorporated into the purchase agreement. This asset list will meet the buyer's criteria specified in their LOI.
10. The buyer will need to make an escrow deposit of 10 percent. The buyer will be given a due-diligence period in order to approve the final list of assets.
11. After the due diligence period, the buyer will deposit the remaining funds and the t ransaction will be completed. The buyer will be expected to purchase 90 percent (90%) or more of the asset list. If less than 90 percent (90%) is accepted by the buyer, the price may be open to renegotiation.
Please note: This is a general outline of the procedures. Different Partners may have differing versions of these procedures. These procedures may also be revised at any time.
If you are able to work with the Treasury's procedures and stipulations, you should be ready to take the next step. Good luck!
John Durr is owner of Summit Enterprises. He acts as an Intermediary Consultant. He deals with a representative of one of the PPP Partners. He can arrange a conference call to get a buyer approved to move forward with the Partner. This relationship will give any buyer access to Billions in REOs and mortgage notes. Mr. Durr also has access to other REO sources for those buyers who choose not to deal with the Treasury. He can get REOs and both performing and non-performing notes. He has developed contacts with many different Seller's Agents and Brokers. With his many contacts he is able to fulfill your REO and Mortgage purchase needs no matter what level they may be. If you are interested in purchasing $5 million, $10 million, $100 million, $1 billion or more, he is presently looking for additional investors to build business relationships with. You can contact him through his website at http://members.iglide.net/jdurr/Summit-Enterprises-Home.html or email him at bulkreos@clearwire.net.
Mr. Durr also works as a Consultant for buyers and sellers of Gold Bullion, Currency Exchange, Financial Instruments, and Refined Petroleum Products including: D2, JP54, and Mazut.
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