Residential note program


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Castle Rock is one of the Nation's leaders in distressed commercial and residential mortgage-backed notes. This presentation provides a brief look at Castle Rock and how they manage residential distressed debt for their investors.

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Residential note program

  2. 2. Castle Rock Commercial Acquisitions purchases distressed real estate backed loans at significant discounts, works through the process to either get the property back or get the mortgage note to perform again, and then sells the notes or property off to investors for a profit. Because of our unique position as both a direct buyer and/or as a direct seller between larger hedge funds/banks and individual real estate investors and aggregator funds, we’ve been able to carve out a successful niche in the distressed debt market.
  3. 3. Note vs Real Estate Investing • Quality real estate investments at reasonable prices are becoming harder and harder to find for investors. Large aggregation funds are purchasing real estate at an alarming pace and are paying retail prices to do so. Real estate investors have started to look at other sources for their product…us! • Rather than purchase real estate directly, we buy the mortgage notes on distressed real estate for an average of 30% to 45% of the underlying value of the collateral real estate. We specifically target mortgage notes where the borrower has given an indication that they want to turn over the property through a deed in lieu of foreclosure. We also look for mortgage notes in states where the foreclosure process is relatively quick and painless. This allows us to effectively “purchase” the property by buying the note and converting it to REO for less than 50% of the property value. We then quickly sell the asset off to investors in our pool, including aggregator funds, for anywhere from 80% to 90% of the property value. The investor is pleased as they obtain desirable property at a discount and our funds make a handsome profit with minimal risk on each transaction. • Most see the times we are living in as an opportunity to purchase real estate, we feel we have not hit bottom yet and that there is a better way to partake in the lower market prices for real estate…purchase loans using desirable real estate as collateral rather than own the property outright. • We have less risk with more reward potential through buying the mortgage rather than buying real estate.
  4. 4. Note vs Real Estate Investing • * Investing at or just below market * Investing at 50% or less of market value • • * Must pay real estate taxes and * Borrower pays these costs • insurance • * Must worry about finding tenants * Borrower finds tenants, not the lender • • * 25% market drop means 25% loss * 25% market drop…we’re still OK. • • * In case of default, lose the property * Gain a property at a discount • • * Pay for repairs and maintenance * No such costs, the borrower pays INVESTING IN REAL ESTATE INVESTING IN NOTES
  5. 5. • Castle Rock Commercial Acquisitions is a Tampa-based firm that deals in commercial and residential real estate-backed bank loans. We purchase these loans at a significant discount of the current value of the underlying collateral from banks and larger hedge funds and resell them for a profit to investors. Our team members have a minimum of 20 years of lending and collection experience in the banking, real estate, and title industries, so we not only have access to the loans, but we know how to assess each loan to ensure that we are avoiding pitfalls in the process. • We are the experts in the field! Our experience is unmatched in the note buying industry as is our ability to minimize investor risk while maximizing investor returns.
  6. 6. • Castle Rock enjoys a significant advantage in the market because it has built an efficient machine from the acquisition to disposition of the assets we purchase. We have unparalleled access to quality distressed notes. We have the staff, systems, and structures in place to properly evaluate the opportunities for purchase as well as the strategic partnerships to service and efficiently collect the debts owed to us. We also have, through years of cultivating relationships, a broad base of real estate investors who purchase our REO products and re-performing notes once we convert the notes from a non-performing status. These investors include decision-making asset managers with aggregators, so in many instances we are able to have a property sold before we even receive the loan back through the foreclosure/deed in lieu process. • After 20 years in banking and finance, our management is closely connected to bank executives, the legal community, and the brokerage community. Where others are unable to gain unfettered access to bank portfolios, we can. We certainly have a competitive advantage when it comes to picking up the cream of the crop.
  7. 7. Steve Dorsett is a well-known expert in the field of the processing of distressed debt. He handles Castle Rock’s loss mitigation, funding, and disposition functions. Dorsett is a CPA with 30 years of experience in the real estate consulting field with such firms as Arthur Andersen and Deloitte & Touche. He also heads up Clear Title America, one of the most successful closing agents for distressed residential real estate in the Nation. It is Dorsett’s relationships with real estate investors that give us our huge bank of buyers for our products. It is also his extensive experience in the title field that helps Castle Rock dramatically minimize risk to its portfolio. He has built a pool of hundreds of individual investors that actively seek our products for their portfolios. MANAGEMENT TEAM Doug Smith spent more than 20 years in Private and Commercial banking and handles the analysis and collection strategy functions for Castle Rock. He started his career with Norwest in the St. Louis market where he cut his teeth in lending and heavy collection. Upon moving the Bank One’s B, C, & D residential lending division, he rose through the ranks to run the operations support division which ensured that loans moved through the processing system smoothly to package them for bulk-sale to institutional investors. He moved to Florida in 1996 and soon became an expert in commercial and private lending. He has served some of the Nation’s largest financial institutions such Wells Fargo and NationsBank. His expertise in loan underwriting, collections, and distressed asset disposition allows Castle Rock to have an unmatched record of success in the distressed debt market. It is also Smith’s connections in the lending world that provide Castle Rock with its pipeline of loans to purchase.
  8. 8. Sources of Product • Castle Rock leverages the relationships it has built throughout the years to garner a large supply of assets for review. On a weekly basis, Castle Rock averages between 250 and 400 assets under review. These numbers are growing as more and more lenders turn to Castle Rock as an outlet for distressed assets in their respective portfolios. • We typically purchase loans directly from banks or from hedge funds that have made large bulk purchases of loans from GSEs. They are typically in the business of handling performing loans and are not as well equipped to handle distressed assets. These funds and banks typically do not have the same due diligence and collection capabilities that we have, therefore, we are able to squeeze value out of the assets that they may not be able to.
  9. 9. Our Process • Castle Rock takes a disciplined approach to choosing the assets for its portfolio. • First, we run new potential investments through a series of proprietary filters to identify those assets that might fit our stringent investment criteria. We then use our years of experience to pour over all available data including every page of loan documentation including but not limited to the note, mortgage, past appraisals, client correspondence, property reports, lender notes, and title reports. We also use all of our resources to identify things about the loan and the current borrower that many times even the lender we are buying the loan from does not know. It is through this process that we determine likely potential exit strategies before the loan is even purchased.
  10. 10. • Each State has unique rules and regulations that require expert handling of the loan collection process. We have built a network of professionals and servicers to assist us in complying with all of those State-specific laws in the jurisdictions we deal in. Upon purchase, we immediately board each and every loan with a licensed servicer for that State. We quickly execute our exit strategy keeping in mind that we need to be flexible as collection circumstances warrant. Through our exhaustive due diligence process prior to buying the loan, we greatly mitigate downside risk to the portfolio while maximizing investor return. • Downside risk mitigation is the key to any purchase we make. We do not lack for buying opportunities and pushing a bad purchase by letting emotion enter into a decision is something we avoid. We look at every transaction and ask ourselves “what is the worst thing that can happen if we purchase this note? If we can not develop a decisive exit strategy for a purchase, then we don’t buy the note. It is that simple. With this in mind, more than one approval is required with any purchase we make. More than one person looks at each file to ensure that we are minimizing the risk to the portfolio.
  11. 11. Possible Outcomes We enter into each and every transaction we do with a pre-planned exit strategy in mind before we purchase the asset. We attempt to identify the most likely outcome of the collection process before we buy the asset being especially mindful to identify the worst-case scenarios of each asset purchase. Through our experience, we have found that three main scenarios typically develop in almost all asset workouts. Deed In Lieu of Foreclosure, approximately 65%: By the time we purchase a loan, the borrowers are usually severely delinquent on their loan. Many borrowers have not paid for over 2 years and the prospect of them moving out is an inevitability that many have already accepted. As we are not federally regulated, we have more options to expedite the process than a bank would. We are not required to report to any credit-reporting agency nor do we have to chase a deficiency balance. We simply want the property and have no interest in ruining the borrowers lives. Many borrowers welcome an offer of “if you move out, leave the property in good condition and sign this deed in lieu of foreclosure, we will waive any deficiency balance on your loan. You can start your life anew.” That offer is something that many, about 65% of severely delinquent borrowers, are waiting for. It keeps our collection costs to a minimum and allows us to dramatically cut the turn time in liquidating an asset.
  12. 12. Reworking the Note, approximately 10%: We find that some homeowner’s, approximately 10% of borrowers, are delinquent because of a temporary problem and are closely tied to the property. They may have inherited the home or they may have children in local schools. Many have lost jobs and now have taken jobs for less pay. They may be able to afford a lower payment, but have no hope of paying the arrearage. Here again, we can simply rework the payment schedule to bring the payments down to a level they can afford and get them paying again. We have an extensive market for performing and re-performing mortgages. This market allows us to keep borrowers in the home, get them to perform again, and sell the loan off for a significant profit. Foreclosure, approximately 25%: Our last resort on any transaction is to actually foreclose on the underlying collateral. Although this is a last resort, we have the resources in place to efficiently retrieve the property from the borrower and liquidate it for a profit. Because we carefully analyze the loan files and we tend to focus on States where quicker foreclosures are possible, we are typically very efficient at the foreclosure process.
  13. 13. Every month, more and more investors turn to Castle Rock to assist them with the management of the real estate portion of their portfolio. By buying notes at a fraction of the value of the underlying collateral, we are able to dramatically reduce the risk to our portfolios while we maximize returns. We look forward to adding more investors as well as those looking for new product for their own portfolios.