DIRECT TRUST DEED INVESTMENTS
Why Buy Trust Deeds from Athas Capital Group, our affiliated mortgage loan originator:
We have all heard the terms “hard money lending,” “equity based lending” and “private money loans,” and each of these phrases carries the connotation that the high yield you are offered on your investment comes from lending exclusively against the equity in the collateral you are secured by.
At Athas Capital Group, we entered the private mortgage industry in 2008 with the goal of employing a higher level of underwriting to our loans that we sell to you, the private investor. Below, we touch on some areas where we feel our lending, underwriting, packaging, and servicing standards help to distinguish us from our peers.
Our underwriting/investment philosophy: Most hard money companies base their investment/funding decision solely in regards to the equity in a property. At Athas Capital Group, we look at every aspect of a loan applicant. Beyond just the protective equity in our collateral, we also take into consideration the borrower’s credit history, previous mortgage pay history, job stability/income stream, his/her other liquid and illiquid assets, his/her other liabilities, the cash flows of the property (if it is income producing), and then we put together all the pieces when formulating our investment thesis. This way, we are able to gauge not just the potential recovery in a foreclosure (like pure equity based lenders) but are also able to better assess the probably of a default situation.
Our underwriting and funding process: Most hard money companies slap together a skinny loan file that consists of a 1003 (mortgage application), credit report and an appraisal and then look to sell the loan to you. At Athas Capital Group, we have a structured process that consists of three steps. First, each loan we produce is fully vetted by our processing team based on a custom tailored, comprehensive condition list and our general underwriting manual (like a bank). Second, the loan file is thoroughly evaluated by our dedicated underwriter that used to underwrite deals for banks. Third, the principals personally dive into the loan file and then vote on whether the loan represents a suitable investment based on its specific merits and considerations.
Our skin in the game: Most hard money companies rely upon you to fund their loan. They put pressure on you to rush, rush, rush so they can close their loan and get paid. At Athas Capital Group, every loan we sell has already been funded by us internally. We have to believe in a deal before we would consider selling it to you. After we fund a loan ourselves, we do not know if we are ever going to want to sell it, or if we will even be able to sell it if we want to. The benefit to you is that you can take your time to evaluate a loan file without having to rush to meet a closing date. Also, when buying a seasoned loan you have better insight than with a new loan because you have the opportunity to observe the borrower’s pay history. Lastly, you can derive greater comfort knowing that the person selling you the loan had their own capital in the deal, which translates into more confidence that all the appropriate disclosures and documentation were implemented. In short, we put our money where our mouth is.
Our motivation: Most hard money companies are mortgage brokers who only get paid through the loan origination points. At Athas Capital Group, we are not reliant on loan origination fees. In fact, we fund approximately 1/3 of our loans at par! We offer par and low cost pricing options to our borrowers in exchange for higher coupons, prepayment protection, and so that our broker base is incentivized to bring us their best deals because they get paid more if their loans fund through us than with our peers. We happily sacrifice profitability for quality deal flow.
PrePayment protection: Most hard money companies want short term loans without prepayment fees so they can turn your capital as often as possible. More churn means more loan origination fees for them and more headaches for you. Not only do you have to spend more time looking at more deals, you have reinvestment risk. In the interim period between loans, you are not earning any yield and there is always the chance that the next deal you fund might be at a lower coupon than your previous one. At Athas Capital Group, many of our loans come with prepayment protection. If a loan pays off early, you are compensated for your reinvestment risk.
Support after your loan purchase: Most hard money companies want you to fund their deals and then you are left to service the loans yourself. This means you have the headache of sending the borrower his/her statements each month, following up on payment delinquencies, monitoring property taxes and hazard insurance coverage, and managing potential foreclosures, all the while hoping that everything you are doing is in compliance with a dynamic, constantly evolving regulatory environment. At Athas Capital Group, we will service the loan after we sell it to you and will hold your hand the whole way through until you get repaid. Our goal is to provide you with a passive income stream and a seamless investment experience.
If you don’t get paid, we don’t get paid: Because we service the loans we sell, we earn an ongoing servicing spread. So, we are incentivized to make sure the borrower is current with his/her payments. If he/she become delinquent, your payment stream stops and so does ours. We do not rely upon loan origination fees for our profitability but rather the recurring revenue stream from ongoing loan servicing. This is much different than the typical hard money lender who does not care if a borrower keeps making his/her payments or not, they just want to close the loan and pass you the proverbial “hot potato.”
We don’t touch your cash flow: Most hard money companies that do service loans, do so in-house. This means that they are taking custody of your cash flow. At Athas Capital Group, we act as the Master Servicer and employ a reputable, third party Sub-Servicer. We make collection calls and send delinquent payment letters, we monitor property taxes and insurance, and we supervise all aspects the loan servicing. However, we do not collect payments from your borrowers, whether it is a regular monthly payment or a loan payoff, nor do we send you your monthly payment checks. These activities are performed by our loan Sub-Servicer who has been in business since 1982 and sub-services approximately $6 billion of private mortgage loans. This should provide you with comfort, knowing that your hard earned savings are well insulated from potential misappropriation.
Overall level of sophistication: Most hard money companies are run by one or two principles and one escrow/servicing employee. But our lending platform consists of over 50 professionals, all working to ensure that we source and fund only the highest quality loans. We are committed to being the largest, most professional, and longest tenured hard money company in our industry.
WHY WE SERVICE ALL OF OUR LOANS
"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 Athas Capital Group (“ACG”), 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.
ACG 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 ACG 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 ACG 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, ACG’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.