LoanMarket.net - California's Largest Marketplace for Whole Loans

HELP/FAQ

The Following hypothetical questions are indicative of inquiries that have been directed to LoanMarket. The indicated answers reflect LoanMarket’s good faith belief, but are not intended to be a complete or unqualified response; provide an opinion on any law, regulation or legal proceeding; suggest a course of action that is applicable, appropriate or opportune in any individual case, constitute a representation or warranty by LoanMarket, or necessarily state facts, motivations or circumstances applicable to any individual.

Who lists loans for sale through LoanMarket?  Sellers include private equity funds, banks, private individuals, home builders, and home sellers who privately financed all or a portion of the sale price (seller carry-back note owners). 

Where do they get them?  Many of the PE funds acquire the loans in large pools sold by the FDIC, banks or from other investment funds.

What did the sellers pay for the loans that they are selling through LoanMarket?  Costs range from $0 to par value, depending on a variety of risk factors, prevailing market conditions, liquidity needs and investment criteria. 

How are loans priced for sale?   Offering prices are determined individually by sellers, and typically take into account the value of underlying collateral, the debtor’s payment history and current payment status, the lien position, the number and timing of the payments remaining, and the note rate. 

Why are the loans for sale? The reasons for selling are diverse and constantly changing, and include (among other things) a need for liquidity, other investment opportunities, changes in investment criteria, changes in the value of the loan, portfolio balancing, compliance with contractual or regulatory restrictions.

Who are buying loans through LoanMarket?   Buyers include banks, private individuals looking to increase their position in this asset class, and other private funds interested in holding or reselling modifying the note.

What do buyers do with the loans that they purchase through LoanMarket?   Buyers have different objectives, many of which are tied to the status of the loan.   Performing loans (loans on which the borrower’s payments are current and have been made on time) may be held to maturity or resold.   Discounted or distressed loans, which are often non-performing, otherwise in default or subject to legal proceedings, might be purchased at a significant discount to the outstanding principal loan balance, which enables the buyer to modify the loan to bring it current.   These loans almost always necessitate negotiation and additional documentation, often involve more risk than performing loans. , and may require the assistance of experts in this field.

Are there any restrictions on who can buy loans through LoanMarket?  Yes, buyers must first be approved by LoanMarket. This process primarily requires  the buyer present proof of his  financial ability to complete the purchase of loans. .  Buyers can be foreign or out-of-state residents or entities.  Buyers can also use self-directed IRA funds to purchase notes.

How sophisticated must a buyer be to make a successful investment by purchasing loans?  Promissory notes and related security instruments are complex, may be difficult to understand, govern legal rights and duties of the parties, and involve investment risk. As a result, LoanMarket encourages buyers to seek appropriate legal, accounting and tax counsel before making an investment decision.

What does lien position mean? Lien position refers to the priority of a lien (e.g., a mortgage or a trust deed) which has been recorded to secure a collateral claim against the underlying the property. A lien priority is usually established by the earliest relative recording time and date. For example, if a lien is in "first position,” generally that lien must be satisfied "first" when any sale of the secured property occurs and that its terms may be enforced via foreclosure without deference to junior liens on that property. Additionally, if a lien in a priority position of several liens (e.g., the 1st of 3 liens) is released  (usually by payment of the related obligation), the junior liens advance in priority (e.g., the 2nd and 3rd position liens move respectively into the 1st and 2nd positions). All buyers of secured loans should request a professional title company to provide a report of the title and obtain a policy of title insurance which insures the lender for the lien position and an agreed upon dollar amount.

How are the transactions completed once an offer is accepted?  Transactions are completed through the escrow process using the LoanMarket website to provide a communications link between the seller and buyer.

How do loan owners collect payments from the debtors?  New loan owners have the option of collecting payments directly from the debtor or of retaining a loan servicer ( several of which are listed on the LoanMarket website) to manage the collection process. 

How much do the servicers charge loan owners?  Servicers typically charge 3-50 basis points (0.03% to 0.5%) of the loan principal, but additional charges may apply if certain foreclosure or other collection services are rendered.  Servicing prices are typically based on the number of loans being serviced for that owner and the status of those loans (i.e., performing vs. nonperforming).

Do new loan owners ever communicate directly with the borrowers or is all communication through the servicer?  When the owner of the loan engages a loan servicer, all communications are typically through the servicer. This protocol helps the loan owner’s identity to be shielded from the borrower (which may be desirable to avoid direct involvement with the debtor.  Please be aware that public records will indicate the name of the note owner (beneficiary).  However, if a 3rd party is servicing the loan, the billing and payment information will be directed by and deposited with the servicer – not the beneficiary.  

What can loan owners do if the homeowner doesn’t pay?   Loan owners have several options.   Hiring a specialized servicer is usually the first response of an inexperienced owner of a defaulted note.  An attempt to modify the loan, by either lowering the interest rate or principal, is often tried to reduce payments to a manageable level and put the loan into a performing mode.  In more extreme cases, and in cases where the underlying asset value exceeds the payment capabilities of the borrower, the loan owner can go through the foreclosure process.

What happens if a homeowner-borrower dies? The obligation on the promissory note becomes the obligation of the borrower’s estate or any joint obligor on that note.

Can loan owners modify the terms and conditions of loans?  Yes, by negotiation with the borrower, an owner may alter the provisions of a loan, by (among other things) extending the maturity, changing the interest rate, and deferring interest and or principal payments.  Because such modifications may affect the rights of other lien holders, owners without sufficient experience in these matters are advised to first consult with expert advisers. .

Can someone buy their own mortgage? If so, what happens next?  Yes.  A homeowner would typically only want to buy such a loan at a discount from the outstanding loan balance. If the homeowner pays cash to purchase his own note, the loan is deemed paid in full.   If the homeowner finances the purchase by borrowing, the lender may either secure the debt with a new mortgage or take an assignment of the existing mortgage.

Who are the winners and losers on LM?  Loan sellers win if they are selling for a profit or attain needed liquidity.  Loan buyers win if they purchase a loan that meets their investment objectives.  Borrowers are likely to win if a newly purchased loan is modified, allowing them to stay in their home.

Why would investors want to buy a home loan in this economic market? Some commentators have described the current market as “unprecedented” (at least in recent times). In this market, notes are being offered at discounts and risk-adjusted yields on. low loan-to-value properties. While there is no assurance with any investment, especially with the current inherent general and specific uncertainties that exist in the housing market and economic climate, attractive opportunities do exist to match a variety of investment criteria.

Isn’t this a very risky investment?  The loans for sale on LoanMarket are diverse.  Each loan should be assessed individually to determine risk.

Can people buy loans to simply foreclose and acquire real estate at a deep discount?  Yes, but only if the borrower is in default on the loan or, if in default, does not restore the loan to performing status in a manner permitted by applicable law.  In addition, the foreclosure process is not always easy, fast or economical, and may require legal assistance, particularly if there are other liens on the property.

How is this different from foreclosure auctions?  Foreclosure auctions enable buyers to purchase real estate.  LoanMarket is a web-based exchange that enables investors to purchase a loan that is secured by real estate.  A loan owner does not own the underlying property unless the borrower defaults on the loan and the loan owner is the purchaser in a foreclosure sale.

If someone wants real estate in their portfolio, is the purchase of real estate secured notes a prudent way to do it?  Real estate secured promissory notes are not the same as real estate itself.  The owner of a real estate secured note does not, unless the owner acquires the property on foreclosure, share in the value of the property itself or have the burdens associated with the ownership or management of real estate.

Where does LoanMarket fit into the solution for the mortgage crisis?  There is no central marketplace for individual loans.  As a result of the resulting illiquidity of these critical instruments, lenders are currently unable to lend new money.  In addition, some owners of distressed loans are not the best at managing these loans.  There are, however, many entrepreneurs and businesses who are experts.  LoanMarket facilitates the transfer of the problematic loans to the most efficient owners, including regional and "workout" specialists. 

What kind of discounts can loans be bought for?  Discounts change on a daily basis and are related to numerous factors, including but not limited to the amount of equity in the home, the status of payments, and the needs of the seller. 

How does LoanMarket make money?  LoanMarket charges the seller a listing fee ($200.00) for each loan, a closing processing fee ($495) and a closing processing fee (the greater of $1,000.00 or 0.95% of the sale price) upon completion of the transaction.  LoanMarket charges the buyer a closing processing fee ($495).

What kind of information about the Notes is available? LoanMarket.NET requires a certain amount of information on the underlying note.  In addition, the following documents are listing requirements: the Deed of Trust, the Note, the Title Policy, Declaration of Homeowner’s Insurance.  Each buyer must determine the information they require in evaluating the Note. 

What kind of information about the homeowner is available?  No information about the homeowner is available through LoanMarket.NET; however, information about payment history is often available.

Can someone in who is not resident in California buy a note through LoanMarket? Yes. .

What kind of safeguards are in place to protect loan buyers? Loan sellers? Homeowners? Although title insurance covers a number of risks, the underlying investment risk rests entirely with the owner of the note. Accordingly, LoanMarket recommends that every buyer scrutinize each loan before purchasing to determine if the investment is suitable. LoanMarket requires a minimum amount of information including the note, deed of trust, declaration of homeowner's insurance, and the title policy.  Finally, LoanMarket facilitates the sale of the note through escrow (First American) to ensure the transfer is seamless.