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