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1
Notes and Insight to Make you a Better Buyer
Licensing and the Market
22
Objectives for this Session
• Introduction to Licensing: GA and CA examples
• Licensing examples: CA and GA
• The market – a current overview
• Macro picture
• Loan sales
• Licensing – some basic points
33
Licensing
All the answers aren’t in one place …
• Problems with “advice” across states
• Exceptions
• Attorney input/advice vs. actual licensing support
• 1/3 of states
• Regulatory environment changing, emergence of a “clearinghouse” for licensing registration: NMLS
www.stateregulatoryregistry.org (follow links for NMLS)
44
Licensing takeaways
Learn what’s required in your state
• Loans are bought ALL the time by people and companies without licenses …
• But doing so is illegal in states that regulate note buying
• “Will I get caught?” vs. “How much does it cost and what does it take?”
55
States with Readily Available Licensing Info (NMLS)
• Arizona• Arkansas• Connecticut• Delaware• Georgia• Idaho• Indiana DFI• Indiana SOS• Iowa• Kentucky• Louisiana• Maryland• Massachusetts• Michigan
• Mississippi• Nebraska• New Hampshire• New York• North Carolina• North Dakota• Pennsylvania• Puerto Rico• South Dakota• Rhode Island• Tennessee• Vermont• Washington• Wyoming
66
The Market - Rally & Hope
At 1998 levels now
77
Have we hit Bottom Yet?
New York Times, May 4, 2009
Now [Sacramento] seems to be in the earliest stages of a recovery…
Sales in Las Vegas in March, for example, rose 35 percent from last year.
88
US New Home Sales
March 2009 – lowest since 1963
99
Unemployment – Still Growing
No Slowdown in Job Losses
1010
John Mauldin @ Investor Insight 5/11/09
Part of the reason we are so challenged in our outlook is that we are experiencing a deleveraging on a scale in the world that is absolutely breath-taking in its scope.
And to balance that, governments are going to have to issue massive amounts of sovereign debt to deal with their deficits.
But who will buy it, and at what price?
And in which currency?
1111
US Deficit Shortfall Assuming $0 in Jan. 2008
7 straight months deficit growth
Cumulative Deficit Since Jan. 2008
-1,400,000
-1,200,000
-1,000,000
-800,000
-600,000
-400,000
-200,000
0
200,000
Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09
1212
US “Income” (last 28 Aprils – traditionally + months)
First shortfall since 1983
US Deficit/Surplus (-)
-50,000
0
50,000
100,000
150,000
200,000
250,000
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
1313
Home Prices Still Dropping
I expect another 15-30% Drop
1414
FASB 160 and Accounting
The IMF reckons that both European and US banks - but in particular the European ones - are well behind the curve in terms of recognizing their credit crunch related losses. According to the IMF, there is at least another $1,500 billion to come.
So when the US banks reported surprisingly good numbers for Q1 it was certainly not because the economy had suddenly and miraculously revived itself, but because some of the oldest tricks in the book were used to gloss over much bigger problems.
Absolute Return Letter, May 2009 (www.arpllp.com)
1515
Foreclosures – Climbing Still (CA example)
Source: MDA Dataquick, April 22, 2009
Many lenders re-initiated foreclosure proceedings after March 31, 2009 (the
“holiday homeowner break”)
1616
Default Rates by Bank as an FYI
Source: MDA Dataquick, April 22, 2009
Institutions with highest default rates for loans originated in August to November 2006:
• ResMAE Mortgage 69.9% of loans w/NOD’s)• Master Financial 64.6%• Ownit 63.6%• IndyMac default rate of 18.9%• World Savings 8.0% • Countrywide 7.7%• Washington Mutual 6.3%• Wells Fargo 3.4%• Citibank <1% in default• B of A <1% in default
1717
The Market: Loan Sales
Sales and Pricing Trends:
• PPIP – market slowdown since 12/08
• Uncertainty on pricing: WL Ross (10%); Morgan Stanley – DB – CSFB (3-7%)
• Hold mentality amongst larger institutions
• Smaller institutions still hitting quarterly and monthly recovery targets
• Consolidation: larger trading platforms (Milestone, First Financial, DebtX)
• Rise of the small aggregators: BigBidder / Loanmarket
1818
Tips on Sourcing
Regional banks
Loan-level is good
Bankruptcy trustees and liquidators (Resmae /
Ownit / AHM)
Build relationships now – buying opportunities
will increase through the year
Follow-up, follow-up, follow-up
Don’t assume 1 trade = forever deal flow
1919
Next Session: May 27 5pm PT / 8pm ET
Due diligence basics – a step-by-step analysis