I Don’t Want Anyone to Service the Loan Besides Me!! No Way!

Ahhh…the often uttered words of a seasoned trust deed investor, words that more than once have fallen upon the ears of a less than moral mortgage broker. Unfortunately, the stories are indeed true of mortgage brokers making loans and collecting payments from the borrower but never remitting those payments to the investor; disingenuously telling the investor that the borrower has stopped making their payments and that he or she, the mortgage broker as the loan servicer, will foreclose on the property on behalf of the investor. At last, the immoral broker embezzles the borrower’s payments and worse yet perhaps even their payoff checks. Of course, after you learn that he or she did this to you, you find out that the immoral broker did this to all your friends (which you referred to this broker) and to all the other investors whose loans he serviced. Bernie Madoff yes, but on a smaller scale. Does that make you feel better? Definitely not! So you have determined that from now on “I don’t want anyone to service my loans but me!”

From this awakening, you become reactive and not proactive in trying to find your next beloved, trust deed investment. Through your searches you find two camps, the broker who doesn’t care about servicing and the broker/banker who does. You obviously gravitate to the broker that will allow you to service the loans yourself. You are happy but all the while you never ask yourself why the broker doesn’t care about earning any recurring income, he or she just wants the upfront points when the loan closes. Should it not concern you that the broker just wants to get paid at closing and then hand the hot potato over to you?

On the other hand, there is the broker/banker that doesn’t charge as much up front and is therefore able to source deals with better borrowers and at lower LTVs, but this broker/banker would like to earn a profit so he or she can continue to source safe, conservative deals for you and others like you. So yes, this type of broker/banker has a different business model, but it is predicated on a novel idea: don’t set your investors up to potentially lose money! Charge less up front fees, but make it up by earning ongoing servicing revenue through the life of the loan.

I know you said that you would not let this happen again, but do not worry for we will offer you a solution to that concern a little bit later on in this letter. For now, let’s admit that if the broker/banker is going to generate a meaningful part of his or her compensation as a result of you receiving your monthly payments, he or she will be more committed to the quality of loans he or she sources. If you do not receive your payments then the broker/banker that is servicing the deal does not get his or her servicing income…which can only be a good thing! So let’s get this straight, don’t you want the broker/banker that originates and underwrites the loan that you fund to be intricately tied to the future payment stream you are depending on? Brilliant! If you do not get fed, the broker/banker should not either!

Acknowledging that the servicing retained business model will deliver you better trust deed investments is one thing, but getting comfortable with it is another. After all, the broker/banker could still embezzle your payments and run off to a third world country with no extradition treaty and live the rest of their lives hiding in a hut. Realizing your well placed concern, we have created our business so that you can have your cake and eat it too. At Rama Capital Partners (“RCP”), we do not touch your money even though we service your loans! You must be asking yourself how that can be, but we have an established, differentiated business model that was built with your satisfaction in mind. As we created our platform, we asked ourselves the following questions. Surely, no investor could have an issue with us making sure that our borrowers were current with their mortgage payments, right? Of course, no investor could have a problem with us making sure that our borrowers stay on top of their property taxes, right? And the same for property insurance? Wouldn’t our investors prefer to have us serve as a barrier between them and the borrower should foreclosure be unavoidable? The answer to each of those questions was yes, of course each of those services would be valued by our investors. So, all we had to figure out was a way to address the lingering concern regarding the custody of cash flow.

RCP serves as the Master Servicer of our loans and we employ FCI Lender Services (“FCI”) as our Sub-servicer. What this means is we do all the dreaded jobs the investor does not want to and should not have to do, but all of the money is collected and disbursed by FCI, one of the largest private money mortgage servicers in the United States (www.trustfci.com). The Sub-servicer takes direction from the Master Servicer but maintains custody of the flow of funds. Borrowers make their monthly mortgage payments directly to FCI, who deposits those payments into a fully insured, zero interest bearing trust account until the check clears. FCI then disburses the funds directly to the investor/lender, net of the agreed upon servicing spread. The borrower pays to us the servicing spread above and beyond the yield we promise you, and the fees charged by FCI are paid by RCP as the Master Servicer. Thus, the yield we promise you is the net yield that you actually receive!

FCI also handles all the payoff checks and yes they have massive E&O and D&O insurance policies and a Fidelity Bond, as you would expect from any reputable institutional servicing company. To recap, even though RCP is the Master Servicer we never touch the monthly payments and payoff checks. But if a borrower is ever late, you bet we will be on the phone with them inquiring about their delinquency, and we will be the one monitoring property taxes and insurance, and we will be the one driving the process (of course with our investor’s feedback) in the event of foreclosure. Remember, RCP’s well being is irrevocably tied to the performance of our loans, which means that our interests are always aligned with our investors. We do not just care about closing loans, but we care about your financial well being!

If your goal is to invest in safe, conservatively underwritten trust deeds, there is only one firm to go to. We offer direct trust deed investments and also manage a private mortgage fund where investors can combine the safety of trust deed investing with the power of diversification.