For investors interested in participating in the high returns from the diverse portfolio of Banyan Tree Funding notes and properties, please contact us at info@banyantreefunding.com or call
858-366-2995
Frequently Asked Questions:
Q:
If a lender is selling a non performing loan for $50,000 that has a face value of $100,000, then something must really be wrong. If the big Lenders in the market place cannot solve these problem loans, aren't you just a greater fool for buying these kinds of loans?
A:
Even though the loan is not performing, i.e. the borrower is not paying their mortgage; we have paid $50,000 for an asset that may currently be worth $100,000. There is plenty of value to support our purchase. Like a marriage counselor, what we first do is to contact the borrower and try to find a solution to their problems and to make the loan performing again. We have a variety of strategies available to us that the original lender did not have. We can help the borrower refinance their loan for a lower loan value that the borrower can legitimately afford. In this case they go get a new loan (for instance: for $70,000 instead of the $100,000 on the face of the note and thus they have the ability to pay us off at a $30,000 gain for themselves and a $20,000 profit for us). We can also help bring the borrower current by doing things that a conventional lender is not set up to do. For example, we can create a reinstatement payment plan while writing down a significant amount of principal, or we can reduce the payments significantly to the borrower. We have the latitude to do this because we paid 50 cents on the dollar for the loan. We can also help the borrower move out,""cash for keys"" and deed us the house. Worst case scenario , we cannot come to some equitable resolution with the borrower, and we will be forced to foreclose on the property, and may end up either selling it to a 3rdparty at the foreclosure sale, or taking it back into our real estate portfolio and then reselling it. In the case of most foreclosures, we expect to recoup our money and also make a profit after all our expenses.
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Q:
Isn't the work out of bad loans a 'bad karma' business in which you are just profiting from other people suffering?
A:
Capitalism is generally played as a zero sum game. Certainly many of the loans that were made in the sub-prime market, based on negative amortization schedules were not made with the best long term interests of the Lenders or Borrowers . The frenzy of irresponsible lending and the ensuing bubble of real estate prices was based on a culture of greed. At Banyan Tree Funding, we take the ethical implications of the work out of these loans seriously. We did not create the financial lending mess we are in and we are not seeking to profit from other peoples troubles. We believe in a culture of compassion as the basis of our servicing our loans. We want to find win-win solutions for our Borrowers as a way of seeking our own exit strategy from these loans. We would prefer to find a way to get every borrower back on track, or to get them to refinance their loan. Our business protocol does not seek to foreclose on people's homes even when that may be our most profitable outcome. We also believe that people who have these loans should be responsible and accountable for the consequences of their actions. Though we did not create these lending problems, we do not want to contribute to a culture that increases human suffering in our society. That being said, we do not shy away from being engaged in the market place. We believe we can do well financially and uphold compassionate values at the same time.
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Q:
Why invest in non-performing loans, can't I do better elsewhere?
A:
We are currently in a financial market the world has never seen. The price of basic commodities has soared and then plummeted within the year (oil, base and precious metals, agricultural products), the USA is engaged in a war without resolution costing trillions of dollars and crippling the American economy, the stock market has fallen 45%, Wall Street and finance has collapsed and the dollar has been falling dramatically against international currencies, the Federal Reserve has stepped in to guarantee money market deposits because of the uncertainty of Banks and Financial Institutions, interest rates are at historical lows, and there is a liquidity crunch in real estate lending that is suffocating real property investment in every sector.
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Non performing loans are a unique opportunity at this time. For those who can take advantage of the complexities of these investments, they are available in huge quantities and at dramatic discounts. Where else in the market place can you buy the security of an asset for a fraction of its actual worth? Even conservative insurance companies make their loans today based on an approx. 6.5% yield at 75% loan to value. We are buying non performing loans at 50% loan to value with better than a 20% yield. We believe in the underlying strength of the single family market in the United States. Even in the face of a near term collapse of some housing markets, the single family home is still the bedrock of American culture and will continue to hold its value into the future. We see this as a once in a lifetime window of opportunity to buy these investments of loans, limited to the next 3-4 years, after which time the market will readjust and these loans will no longer be available for sale, as the housing market recovers from the current mortgage collapse and excess inventories are absorbed.
Q:
Why can't we invest in these loans ourselves? Why do we need Banyan Tree Funding?
A:
You can buy these loans for yourself. See www.debtx.com. What Banyan Tree Funding has done is to find the inefficiencies of the market and create systems to deal with these opportunities. We are able to do the comprehensive due diligence required to purchase single family debt in all 50 states. We also have the experience to do the heavy lifting which includes: the servicing of these challenging loans, finding profitable win-win exit strategies for the borrowers while providing very lucrative profits for our investors. If you think you can do a better job for yourself buying these loans, by all means have at it. In fact, we have a wide variety of loans available for purchase by individual investors at attractive yields. There is also a huge inventory of available loans to purchase and plenty of loan opportunities for anyone who is interested outside of our portfolio. The question you have to answer for yourself is: Are there better alternative uses for your capital and are you better served figuring out the purchase, the servicing and the exit strategies of these kinds of loans for yourself?
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Q:
What if real estate values continue to decline in the single family housing markets? Won't loans that were great buys today, be real 'dogs' in another year when values have declined another 20 percent plus?
A:
The answer to this is two-fold.
First we don't buy just any loan. We try to find loans in solid markets and avoid the very risky housing markets in specific locations such as the Inland Empire in S. California, Phoenix and parts of South Florida, places which are continuing to slide. We believe that the strong markets we have identified are not at risk of sliding substantially. Having said that- we believe the discounts that we have taken on these loans are so large that we can handle continued value slides without losing profitability. Remember that the LTV's at which we buy loans are substantially lower than most hard-money lenders' origination guidelines.
If we are headed something like the 1929 depression, then you are probably better off owning gold. The Banyan Tree Funding loan pool is a safe choice if you are seeking predictable short term returns and believe in the long term viability of single family homes in strong US markets.
We believe that we are in a current short term deflationary environment in which hard assets values are plummeting. Long term, due to the massive unprecedented 7.5 trillion dollars that the Federal Government has printed to save the economy, we expect high inflation and thus the raising values of these homes (and all goods) in the near future.
Our best case scenario is to find a way for the owner of the no performing debt to cure their default. Our worst case scenario is that we end up owning homes at a very low basis that we rent until such time as we can sell the house.
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Q:
Do I own individual loans in Banyan?
A:
Your investment is part of a pool of loans. You have the benefit of being a part of the diversification of the pool and not tied to a particular loan on a specific house. This approach spreads your risk and ultimately increases you yield.
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Q:
What kinds of loans does Banyan seek to purchase?
A:
Banyan Tree Funding seeks to pursue opportunities in defaulted mortgages that with the following general parameters:
· Loans purchased at no more than 50% of a current BPO (Brokers Op of Value)
· Loan amounts less than $200,000
· Preferred exist strategy is refinance via FHA or hard money
· Purchase notes in areas with strong economic fundamentals for employment
· Follow the principal of "Location, location, location" within a particular city
· Focus on First deed of trust
Check for reasonable housing purchase demand in that market tied to employment and economic prospects for the area
· Check for strong rental demand in the location of the house
· 'Profile' loans so that in the case of foreclosure Banyan TF can maintain the condition of the property in a market that retains rental and sale demand (i.e. we seek to stay away from rough areas, we seek good homes (not functionally obsolete) in solid middle class areas, with low crime)
· We want to avoid loans in suburban markets where there has been a speculative boom in new home construction where there is a glut of new product and foreclosures. We prefer core good mature urban areas.
· We seek agents to get more information concerning the homes, condition of roof, the neighborhood, deferred maintenance and even a peek inside if possible
· We generally seek to purchase loans in areas where there are good economic and 'green' sustainable fundamentals: jobs, economic base, proximity to good public transportation networks and employment: government and private sector.
Banyan Tree Funding shall endeavor to continually monitor the implications of market trends and the regulations concerning the following two factors:
1. Availability of Credit: To monitor the availability of Real Estate lenders who can finance funds for borrowers and purchasers for loans less than $200,000
2. Regulatory Intervention: To monitor those laws and regulations (current and proposed) that are related to loan foreclosure. This includes: stays of foreclosure, noticing requirements, bankruptcy laws, novel state and local ordinances etc.
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