| REO (also known as real estate owned, bank owned | | | | $12B out to "bid." The MAJORITY of those are loan |
| real estate, lender owned properties as a result of | | | | pools and mortgage related securities, NOT bulk |
| foreclosures) investments is where many investors | | | | REOs. |
| and groups hedge their potential to purchase | | | | So, when you hear of all these "phantom" REO pools |
| properties at a discounted price and capitalize on | | | | that are out there that investors are directed to at |
| "higher than industry standard" returns. Individuals, | | | | 33% of market value, we caution you to be more |
| pooled groups of investors and hedge funds are | | | | pessimistic than optimistic. It would be inaccurate to |
| beginning to realize that without direct connections with | | | | state that there aren't any smaller pools that are being |
| established inner-banking relations, their abilities to truly | | | | sold, just not in the large volume or price points that so |
| maximize on REO product usually is lost in a | | | | many believe are available... |
| juxtaposition of half-truths and meandering promises. | | | | Now, for the good news out of this: |
| If you're involved in the REO industry for some time, | | | | While there appears to be a strong "attraction" to |
| you will hear hear, on a daily basis, the frustration in the | | | | REO's as well as the builder closeout that are being |
| voices of brokers as well as clients who have been | | | | offered out there, many buyers who were purchasing |
| sitting, continually stirring a pot which has nothing inside | | | | bulk closeouts as well as REO's are now more |
| of it. Recently, it has become our job to be more of an | | | | interested in what is referred to as High-Yield Private |
| educator to these clients, investors and brokers. The | | | | Investment Programs. Here are some of the reasons |
| truth of the matter is that while we provide many of | | | | certain individuals have converted over to the lucrative |
| our clients with REO packages, for the most part, | | | | world of HYPIP's: |
| those looking for $100M dollar packages to a billion | | | | 1. The returns generated are astronomical when |
| dollars, are usually disillusioned. It is important to | | | | comparing REO's and builder closeouts to private |
| understand how the REO marketplace really works. | | | | investment. Imagine buying a bulk builder closeout |
| Here is some reality: | | | | purchase for 50 cents on the dollar. First of all, these |
| The total expected sub-prime related losses through | | | | are few and far between currently in the marketplace, |
| 2009 are about $500B. The majority of that is by way | | | | though they do exist. After the cost of money, the |
| of write downs, discounted sales of whole loan pools | | | | rehab work needed on any of the properties, the price |
| and securities, legal and servicing, foreclosure and | | | | structure for liquidating those homes in a timely fashion |
| workout costs, holding costs, auction fees, and Wall | | | | and all the other added holding costs of purchasing |
| Street brokerage fees and on and on. A small fraction | | | | that portfolio, a Buyer is hard pressed to earn a 30% |
| of those losses are actual REO's while even a smaller | | | | return total. |
| fraction is related to bulk REO sales at major fire sale | | | | 2. The ability to link up correctly with someone who |
| prices. | | | | really, truly has the sources to supply those bulk |
| This was the bulk of the sub-prime related losses | | | | closeouts from Seller's and banks is next to impossible |
| through January of 2008: | | | | for most "brokers". Builders typically go direct to their |
| MAIN SUB-PRIME LOSSES SO FAR: | | | | sources already in the Matrix or those lucky few who |
| Merrill Lynch: $22.1B | | | | have the relations already established with those |
| Citigroup: $18B | | | | builders. There are no more than roughly a couple |
| UBS: $13.5B | | | | dozen verified and legitimate groups out there (that we |
| Morgan Stanley $9.4B | | | | know of) who know how to close these transactions, |
| HSBC: $3.4B | | | | understand the dynamics behind them and know how |
| Bear Stearns: $3.2B | | | | the system works from fruition to completion. |
| Deutsche Bank: $3.2B | | | | 3. Builder closeouts as well as REO's do not stand a |
| Bank of America: $3B | | | | leg against Private Investments. Become an REO |
| Barclays: $2.6B | | | | investor for a minute. Would you rather realize a return |
| Royal Bank of Scotland: $2.6B | | | | of 20% annually with an immense amount of due |
| Freddie Mac: $2B | | | | diligence, implementation, eradication and hassle of a |
| JP Morgan Chase: $3.2B | | | | bulk closeout/REO buy; or, would you prefer a return |
| Credit Suisse: $1B | | | | that guarantees a monthly 5 to 13% return that's on |
| Wachovia: $1.1B | | | | auto pilot once engaged? |
| IKB: $2.6B | | | | Your investment is secure since it is never taken out |
| Paribas: $197M | | | | of your control or current bank account. |
| Source: Company reports | | | | This is what is referred to as the High-yield Private |
| So, this equates to a total of about $280B sub-prime | | | | Investment Program. Many investors are looking for |
| "related losses" of which heavily discounted bulk REO's | | | | these types of programs. There is a Fraternity of |
| would account for 6% (at best case scenario) through | | | | Opportunity and it would behoove you to start looking |
| January, 2008. Deutsche is JUST NOW putting $40B | | | | for sources that are aware of these programs and |
| out to "bid" and NOT to bozo broker chains, but to | | | | offerings. |
| Blackrock and similar firms. Citi is JUST NOW putting | | | | To your investing success. |