Hunter 's Blog

Sub Prime Continuum Theory, London Financial Capital LLC, Hunter Hebert

Hunter Herbert (London Financial Capital) — Mon, 03 Nov 2008 09:33:04 -0600

Let's define the following first

Sub Prime -Less than prime; credit with higher risk characteristics thus charged a greater rate of interest, such as bankruptcy or collection accounts or also called B&C credit.

Continuum - A sequence in which variation in vegetation and/or properties between one event and the next of the series is continuous rather than discontinuous.

Theory - a tentative insight into the natural world; a concept that is not yet verified but that if true would explain certain facts or phenomena; "a scientific hypothesis that survives experimental testing becomes a scientific theory."

The Sub Prime Continuum Theory states that people who have managed to find themselves with a B & C credit rating will always engage in fiscal irresponsibility not always to their fault but it is partly because of the credit risk assigned to them. In the current world we live in everyone's ability to re-pay a debt is based on the FICO (Fair Isaac Credit Organization) which causes a viscous circle once there is the first sign of trouble. It begins once you go from A+ prime credit to B/C sub prime credit; the reason for losing your prime status has no bearing no matter how valid of a reason it is. Once a person's status has changed from A+ prime to B/C sub prime life will change and the cycle begins.

One of the unspoken mentalities that the B/C sub prime candidates carry with them is the idea that there credit will never be the same again no matter what they do. This rationale is dangerous to both creditor & consumer; the best way a creditor can collect on a debt is to threaten to harm ones credit rating if that credit rating is already negative than the creditor has lost its most valuable tool in recouping the credit it extended. The consumer on the other hand views there new B/C sub prime status as a new reason not to have to be as attentive in regards to their bills due date. This newfound attitude is the start of the sub prime continuum theory.

The theory focuses on reasons that individuals representing the B/C sub prime credit tier maintain that status. Consumers classified as sub prime pay more for the same goods that prime credit consumers, this holds true to everything including mortgages, insurance, credit cards, lines of credit, financing household goods, business loans, vehicle loans, & even cell phones. The difference between a sub prime mortgage on one hundred thousand dollars and a prime mortgage can be as much as six percent or five hundred dollars a month higher. That may seem correct based on the creditor taking on more risk with a B/C sub prime borrower but many times it has the opposite effect. Does it really make sense to require the individual who has demonstrated a difficulty in paying his/her obligations to give them a five hundred dollar higher monthly payment then the prime consumer? I do not disagree that the creditor should hedge additional risk with greater reward, but I think there is a way to do this without damaging the consumer's ability to perform on the note on a monthly basis.

Obviously the creditor is helpless if the consumer decides to not pay the note, but there are ways of limiting theses occurrences. First of all is not to differentiate A+ prime credit from B/C sub credit from a monthly debt servicing perspective (interest rate) and implement a different method of collecting the reward for increasing the risk; one suggestion would be to take on a fee for consumers who are not credit worthy. This fee would not be pre-paid and not be calculated in the balance so that interest does not accrue on it. This said fee would be fully earned when the account is paid off or closed and by implementing monthly payments on the fee at zero percent once the balance is at zero and the consumer/creditor does not wish to extend out the credit again. The fee also can be modestly increased/decreased depending on current payment history; it is a risk/reward system. This fee would enable B/C sub prime credit consumers to realize the same debt service ratio's as the A+ prime consumer thus increasing the creditor's chance at recouping the credit extended and interest earned on that credit in a timely manner; while not losing out on taking on additional risk.

For Additional Information log onto http://www.londonfi.com

Are you a DIYer

Hunter Herbert (London Financial Capital) — Fri, 18 Jul 2008 11:00:04 -0500

I was wondering what things you DIY in your business and when you go outside for help.

I know I was too much of a DIY-er when I had my own consultancy business - but then I am a bit of a control freak

Do you do all your own admin? Answer all your own emails? Write your own blog? Look up all your own web stats? Cash your own Checks? etc

As a very small business I found it hard to justify outsourcing even small jobs. I did get better in terms of outsourcing some of my work (I had a network of freelancers who I subbed things to) but I still ended up doing all the admin stuff...

I'd be interested to know of everyone's experience as I still have a interest in how small business owners are working. Do you still DIY? if so why? But if not, what was the push that made you outsource? And who does it now?

Internet Banking!!!!

Hunter Herbert (London Financial Capital) — Wed, 16 Jul 2008 00:28:22 -0500

Why on earth do banks make internet banking so DAMN' difficult! I know all the checks are for security, but do I really need to name the object in the middle of a picture each time I log on?!

Drum. Kettle. Keyboard. Tree.

Once I finally got through this boresome process I needed an authentication password, something my bank never even sent me!

Another thing - why whenver you call a company the staff are never cross-trained? I had to speak to one person to establish I was a business bank account user (because they didn't put the commercial number on any paperwork sent), another to tell me they are sending a new password out and a third to tell me my balance!

Surely it makes better customer service if they cross-trained their staff to deal with each customer start to finish?!

Generating more and better business

Hunter Herbert (London Financial Capital) — Wed, 16 Jul 2008 00:21:49 -0500

I have been thinking over the last few days on ways to diversify my marketing, both targeting specific sectors as well as brand awareness. While I sat there I came up with quite a number of ideas, including:

Brand awareness:
PR
Sponsoring a roundabout / charity event
Local exhibitions
Newsletters
SEO
Networking
Advertising in the paper / magazines
Sign's on my car
Flyering
Public speaking

Targeted:
Direct mail / calling
Targeted Pay Per Click campaigns

Out of all of these I have probably tried 4 already - not many is it? So, as horrible as clichés are, I am going to extend my marketing mix a little further. But I thought I would see what everyone else is doing, and what successes they have had with their marketing, and how they have done it.

So really I want to know:

1. What is the best piece of marketing you have done?
2. What else would you recommend to the rather short list of marketing ideas above?

To Train or Not to Train that is the question

Hunter Herbert (London Financial Capital) — Mon, 07 Jul 2008 13:45:26 -0500

Organisations large and small are looking for ways to reduce their operating costs in the current financial climate; the number of staff is being paired down and budgets are being slashed.

Training often falls into the category of - we can't afford to spend X on training, we need to use that money for infrastructure or - if we spend the money on training we will have to lose a member of the team.

I would argue that this is short-sighted. In this day and age more and more senior people are being asked to create their own documents. Gone are the days where a middle manager had their own personal secretary by right. Nowadays with the advanced software capabilities we all have, there is no need for a secretary - right? You can just write your own articles, reports, letters etc.

So when asked to create an all singing all dancing document what do you do to access the skills that you need?

GoDaddy Promo and Discount Codes...

Hunter Herbert (London Financial Capital) — Mon, 07 Jul 2008 10:09:43 -0500

So I've been looking all over the place for a discount list of GoDaddy promo code and coupon -- half the codes I'm finding are inactive, so just list the ones you know are working right now.

Please post your new coupons in the thread!

OYH3 - $3 off / $6.95 any .COM (renewals too... just used it)

BTPS7 - 20% any order of $50 or more

OYH1 - 10% off whatever

OYH2 - $5 off a $30 purchase

BTPS4 - 10% off anything

chill1 - 10% off

chill2 - $5 off $30

chill3 - $6.95 .coms

hash1 - 10% off

hash2 - $5 off $30

hash3 - $6.95 .com registration

gdd1101c - 10% off any order of $40 or more

Search Engine Optimisation (SEO) & the Meta Keywords tag: the truth

Hunter Herbert (London Financial Capital) — Sun, 06 Jul 2008 17:31:26 -0500

Search Engine Optimisation (SEO) is a mine field, when chatting about SEO without doubt the number 1 complaint I always here is that you'll speak to one so called expert then another and you'll get completely differing opinions on what is the (so called) "truth"

None more so than when it comes it the meta keywords tag, I've always stood firmly in the camp that it has very little impact upon your Search Engine Ranking Position (SERP) at best in some Search Engines none at all, others would disagree. Quoting from Wikipedia (http://en.wikipedia.org/wiki/Meta_tag):

"Meta elements have significantly less effect on search engine results pages today than they did in the 1990s and their utility has decreased dramatically as search engine robots have become more sophisticated. This is due in part to the nearly infinite re-occurrence (keyword stuffing) of meta elements and/or to attempts by unscrupulous website placement consultants to manipulate (spamdexing) or otherwise circumvent search engine ranking algorithms."

Is Email bad for Business?

Hunter Herbert (London Financial Capital) — Sun, 06 Jul 2008 17:22:13 -0500

Businesses are getting flooded with emails and workers are wasting so much time on one way communication, that some companies like Intel are toying with the idea of "no email days."

The problem with email is that unlike telephone conversations where you can have a two way conversation instantly, you send an email and wait for a response. The amount of time wasted can be huge in that the time between sending, receiving and replying can be days if not weeks while the same conversation can be done in minutes by actually speaking to people!

So what do you think? Is email bad for business?

Outsourced Life...

Hunter Herbert (London Financial Capital) — Sun, 06 Jul 2008 17:18:01 -0500

I'm seriously looking at how I can outsouce parts of my private and business life. Particularly those bits I dont' like or I'm not good at.

Is this really viable now from a cost and quality point of view?

What are the options?

Does anyone have any top tips and warnings to pass on?

What every Networker Should Know...

Hunter Herbert (London Financial Capital) — Sun, 06 Jul 2008 17:01:35 -0500

Although networking may have a different meaning for each person,
there are some universal rules, for instance:

- Networking is an activity in the long term, so don't expect any short term results;

- Networking is a process of continuation;

- A networker has to show some authenticity;

- Networking is mutual;

- Networking is all about personal exchanges;

- The basis of networking is the quality of the relation you have with others;

- Networking means you have to invest in people by giving attention;

- Networking means to receive as well, in the form of an assignment, a reference, a tip;

- Networking means to connect with a diversity of people;

- Networking means to connect people with each other;

- To network must be a second nature...

Find Staff for Your Business through Networking

Hunter Herbert (London Financial Capital) — Sun, 06 Jul 2008 16:58:28 -0500

While running my last business, some of my best employees were found at networking events. People are much more natural when they do not know that you are looking at them as potential employees!

I find it hard to recruit the right kind of people using the normal channels like advertising in the newspapers. It is hard to judge people after reading one CV & following it with an interview.

When networking I get the chance to meet the same people a number of times and I could see how they performed in their existing role. I could also discuss the future potential of my business idea and try and get them excited about it before I even suggested that they work for me.

I have even recruited somebody from the gym! I noticed that this guy came in at the same time, 5 days a week, didn't waste any time in between exercises and finished his workout quickly and efficiently before heading to work.

So next time you are searching for that ideal employee watch everybody and head hunt the best people that you meet and not just people that apply for the post.

networking, cold calling, circular distribution which works best for your business?

Hunter Herbert (London Financial Capital) — Sun, 06 Jul 2008 16:22:59 -0500

We are all aware that there are many ways by which we can market or advertise our business or its products by, but through your experience what marketing technique works best for your company?

The list below I have compiled from my own companies experience starting with our most successful marketing technique and finally finishing with the least successful marketing technique.

Circular distribution

Website

Yellow pages

E-mail blitz

Shop adverts

Newspaper advertising

B T phone book

Local magazines

Thompson directory

Networking

Radio (never tried)

Cold calling (never tried)

What falls to the bottom of your Personal To Do List?

Hunter Herbert (London Financial Capital) — Sun, 06 Jul 2008 16:13:41 -0500

Some new research from American Express Insurance Services claims that eight in ten workers (82%) fail to do important things in their home lives every week as work takes over personal time. Exercise and cooking from scratch are two of the main activities that fall to the bottom of the personal 'to do' list. The survey found that other things are suffering a result of more time spent working, such as health and relationships.

Here is the top ten list of what us busy Americans have been dropping from our personal 'to-do' lists:

1. Exercise- 45%
2. Cleaning/tidying up at home 40%
3. Having "me time" at end of day 39%
4. Keeping in touch with friends and relatives 39%
5. Cooking a meal from scratch 34%
6. Getting a haircut 31%
7. Fixing a dentist appointment 26%
8. Sorting out finances/checking statements 27%
9. Planning or researching a holiday 24%
10. Having quality time with my partner / kids 25%

The survey also found that a third of people do not have the time to research pension and plan for their financial future. At least one in four (27%) people cannot find the time to check their bank statements.

Which personal items are you dropping from your personal life due to the pressure of work?

1 in 5 companies give out your Credit Card info to Third Parties!!!

Hunter Herbert (London Financial Capital) — Sun, 06 Jul 2008 16:08:26 -0500

A recent survey of 900 companies revealed that one in five companies had given out customers' credit card details to third parties without making the customers aware of it.
This is usually done in a bid to boost sales and "Nearly 90% of these said the incidents had not been reported to customers."
These data breaches are quite alarming.

What do you think?
Do you have any policies you use in your company to prevent such breaches?

In my old company, when we would send billing invoices, we encourage our customers to pay by bank transfer, or even check.
And we discourage our customers from giving us their credit card details....
...my reason, I don't ever want to see customers' credit card details written on bits of paper, or lying around.
If a customer wants to pay us by credit card, we send them an electronic invoice via PayPal, so they can pay by credit card without giving us their credit card details.

What about you?
What do you do to ensure customers' confidential information are safeguarded in your business?

1 in 5 Companies Give out your Credit Card info to Third parties..

Hunter Herbert (London Financial Capital) — Thu, 03 Jul 2008 16:59:47 -0500

Into the Wild: Movies... Recomendation from Hunter Hebert, London Financial Capital

Hunter Herbert (London Financial Capital) — Thu, 03 Jul 2008 16:54:44 -0500

Film recommendation for you all. I am a big Pearl Jam fan and the lead singer Eddie Vedder was given the task of writing the soundtrack for a Sean Penn film, the soundtrack is stunning and I couldn't wait to see the film. It is based on a true story of a young man who had everything in the US and was about to start university life when he decided to give everything away and walk to Alaska and live in the Wild. It really is a beautiful film and it is hard not to be effected by the films themes. I really recommend watching this film.

NO NO's of Networking?? By: Hunter Hebert, London FInancial Capital

Hunter Herbert (London Financial Capital) — Thu, 03 Jul 2008 16:52:09 -0500

In your opinion: what really rubs you the wrong way when networking?

Perhaps you have comitted the 'unforgiveable sin/s' yourself and learned your lesson; OR you have been on the receiving end of someone else's unacceptable or inappropriate actions / activity / behaviour.

It could relate to online or in-person networking.
It could be at or during an event
It could be what happens (or doesn't happen) afterwards.

I'm looking forward to your comments!

For more networking sites log onto www.londonfi.com/forms.html

Do you have Credibility issues?

Hunter Herbert (London Financial Capital) — Wed, 02 Jul 2008 20:32:56 -0500

If you work at home, you will at one stage most likely encounter the problem of a lack of credibility. There is a feeling in some sectors of business that just because one works from home with a residential street address; it is somehow less credible or less professional than a normal business.

Another problem experienced by people that run a business from home is that they find it difficult to switch off after a day's work, simply because they happen to live in the same place that they work. Business & home life simply merge into one.

Some other home-based entrepreneurs report other issues, like the fact that customers tend to show up at your door at inappropriate times, often well outside of office hours.

What problems have you encountered working from home?

Follow Up Calls.....

Hunter Herbert (London Financial Capital) — Wed, 02 Jul 2008 20:11:23 -0500

We all...or almost all know how important is to approach a client or potential client on a one to one basis.
Sending emails in bulk addressing your product never works as most people receive hundreds of emails everyday and they usually go to spam.

Follow up calls in this case and in any case you send a letter or a brochure to a potential client are very important to create an interest and book an appointment.

Like this communication on one to one basis creates the need, makes you more familiar with the person and increases the chances to do business together.

But how do we approach people to whom we have sent emails or letters, brochures by post.
How we need to speak and discuss with them in a way that we won't put them off and create a potential of a meeting or doing business together.

Do you use a certain way or technique approaching potential clients or customers by phone and what do you think is the best way of doing it and that can really work.

Entrepreneurs Wants and Needs

Hunter Herbert (London Financial Capital) — Wed, 02 Jul 2008 20:06:46 -0500

From the Presidents perspective, entrepreneurialism is vital for the health of the economy. He needs individuals with bags of entrepreneurialism to drive forward business into new areas and to conquer internal / external markets.

Entrepreneurs innovate to improve their financial standing and in the process they have an impact on all of our lives and increase the tax revenues the country so desperately needs

Without this entrepreneurialism drive, business would struggle and new ideas would never get off the ground. Entrepreneurialism is, in a nutshell, the primary driving force behind our lives as we know it, and without it we would all be living in the dark ages.

But for all entrepreneurs to succeed there are a number of other factors that are required beyond great ideas to make new ventures successful.

One of the major limitations to entrepreneurialism and a business aptitude is money. As is always the case in any business, money is critical to success or failure, and no matter how skilled a businessman you may be, you need funding of some sort to get things off the ground. This may be with either personal funds or borrowed funds. Lack of financial support can drive any entrepreneur into the abyss. After all, without money, the best idea in the world will remain just that - an idea.

Another significant limitation to entrepreneurialism is the marketplace. Whether that's in the form of competition, under supply or over supply, the market dictates which ventures will succeed or fail. A good way around this is to initially examine the market you intend to enter and to conduct market research accordingly. Find out who else is operating in the market and what level of success they're enjoying and why.

Alternatively if you're going for a new product or innovation, it's crucial to uncover whether that's something that consumers needs or is likely to buy. Basing this on intuition alone is a simple way to making the wrong move in your new business venture, so make sure you invest the time and effort into getting this right.

Entrepreneurialism is no doubt important, crucially so, in the success of our economy. Without it, things would grind to a halt and employment would be significantly harder to come by. But there are other elements to business success that are of major importance; some of which more critical to success or failure than entrepreneurialism itself, such as proper funding and a willing /able market.

What all entrepreneurs seek is business success. They are all willing to take major risks with their capital. It is in the interest of the country and all of us that as many of these people succeed as possible in their new venture.

What the President/Government needs to do is to encourage entrepreneurs by putting in place policies that help newcomers with funding and market research. He needs to invest in education so that people with ambition can learn the new skills they need to drive their business forward. He needs to decrease red tape so that they can spend more time developing their business instead of filling in paperwork. He needs to... ?

Home Based workers need to go to the office!!!!

Hunter Herbert (London Financial Capital) — Wed, 02 Jul 2008 20:01:20 -0500

I was reading an article yesterday that suggested that with the current economic uncertainty, it would be a good idea for home based workers to show their faces at the office on a more frequent basis, to raise their visibility and appearance of indispensibility, thus putting themselves further down the list of disposable people come the next round of job cuts.
As there are a lot of home based workers on activerain, I was wondering if any of you have felt the need to raise your visibility with employers/clients, or whether this supposed trend has affected you at all?

Correct Ways to raise Business Funds

Hunter Herbert (London Financial Capital) — Wed, 02 Jul 2008 19:45:48 -0500

Raising business finance isn't always easy, and especially so when you've not got enough assets to secure against your ambitious plans. In some cases, you're going to have to part with equity. Venture capital funding can help you grow your business, and plays a vital role in fuelling growth and innovation in the world economy.

Venture capital has helped to fuel the growth of some of the world's biggest public companies at one stage in their life-cycle. Venture capitalists are willing to run the risk of making poor returns, or losing all of their money, for a chance to hit a home run. That's why their capital tends to follow big ideas, and is hard to get when you're looking to do something that isn't too innovative with huge growth potential.

The Dynamics of Venture Capital Funds

When entrepreneurs are looking to raise money from venture capitalists, they often have a poor understanding of how the market works. Venture capital firms do not raise their funds from shareholders; they usually raise their funds from private institutions. They will then charge a management fee, and take a percentage of equity for themselves. They also have a tendency to work together - often they will have other firms invest in a deal along with them. This can be to limit their exposure, and bring in expertise. Some VC firms will take an active role in managing their investments, while others prefer to watch carefully on the sidelines.

Don't Be Too Scared Of Equity Dilution

Many a business has failed because the management have been too afraid of diluting equity. While it's important to ensure you treat your equity with the respect it deserves, you shouldn't be afraid to let go of some if it's going to mean you own a smaller share of a bigger business. Using venture capital you can explore a high risk, high reward, rapid growth strategy. In many cases VC firms will be happy to fund your business to run at a loss initially, because they can see the bigger picture. This is a luxury that you will not be able to take advantage of when you have bank managers looking at your ever dwindling balance sheet.

Raising equity also gives you an opportunity to profit from your businesses success, or idea, before you manage to take dividends or experience a liquidity event. Although it will probably only be offered in later rounds, a VC firm might be prepared to buy equity from you directly as well as buying it from the company.

Choosing The Right Venture Capital Firm For You

Working with a company that's worked in your space before can be of tremendous benefit. They will have domain knowledge to share, and will often have the right contacts in their phone book for closing partnerships and recruiting expertise. The relationship that you have with your VC could make or break your success, so make sure you pick the right one and the best fit for your business.

For more information log onto http://www.londonfi.com

GM: Take our cars Please.......

Hunter Herbert (London Financial Capital) — Wed, 02 Jul 2008 19:04:22 -0500

This Independence Day might be the time for waving the red, white, and blue, but GM wants to nab some green, too. The automaker is extending its 0-percent financing sale, which it kicked off on June 24th as the "72-hour sale," until July 7th.

The extension of the special financing offer allows dealers to capitalize on the increased floor traffic that GM's advertising onslaught generated.

The sale and advertising frequency get people in the door, but many car buyers hem and haw, making it tough to close a deal in just a week's time. The extension gives salespeople a reason to ring up prospects and offer them the sweetest deal they can muster on a new General Motors vehicle.

While we'd love to get a C6 Corvette for $20,000 off invoice and 0 percent terms on the loan, our blogging income likely supports a Certified Used vehicle instead. On that end, GM is also offering financing between 2.9 and 4.9 percent on a raft of used models like the Impala, Malibu, Envoy, G6, and Lacrosse. These are the most favorable terms you're likely to ever find, until someone starts desperately handing out -1% financing whereupon they pay you to take the car

Debt vs. Equity Financing http://www.londonfi.com

Hunter Herbert (London Financial Capital) — Wed, 02 Jul 2008 18:58:34 -0500

What is the real difference between Equity Financing & Debt Financing?

London Financial Capital LLC. http://www.londonfi.com has been dealing in these markets for some time. Below is a brief explanation from Hunter Hebert CEO and Douglas Schulman CFO of the differences, benifits and pitfalls associated with these types of funding options.

By definition debt financing is: When a firm raises money for working capital or capital expenditures by selling bonds, bills, or notes to individual and/or institutional investors. In return for lending the money, the individuals or institutions become creditors and receive a promise to repay principal and interest on the debt.

By definition equity financing is: The act of raising money for company activities by selling common or preferred stock to individual or institutional investors. In return for the money paid, shareholders receive ownership interests in the corporation.

Debt financing is what we like to call collateral intensive and is backed by the credit of the individuals/businesses that are borrowing money. This makes it challenging in today's credit market for businesses or projects to get funded. The need for borrowing money is because the individuals/businesses do not have enough capital to accomplish there goals. That being said since these types of financings are demanding what these individuals/businesses lack "collateral" it always seems to me strange that this is always the first place that individuals/businesses look for money. One reason for this is because individuals/businesses do not know any better they are under the impression banks are there to make loans. This is partially true, banks borrow money at short term floating rates and then loan that money out to consumers at much higher rates than it costs them to borrow. Banks need collateral for this reason to protect the money that is lent out since they are lending out borrowed funds. They almost never value collateral properly it usually undervalued for their benefit and since they have the money they must be right. This is why they are not the right institutions to borrow funds from.

Equity financing is much different from the above; while equity financing can take many various forms there are some underlying themes that remain the same. We are going to talk about the private placement market right now; the private placement market is one of the best methods of getting your business/project funded in this current economic climate. The main reason is due to who is buying these private placements. Life insurance companies and pension funds are the largest buyers of private placements they do not borrow money they take in cash deposits from retail consumers and they do not keep that money idle. They have the ability to keep their investments out for longer time frames earning on a modest rate of return, this is a huge advantage to the Individual/Business that it is invested in since banks do not like to loan out funds for long durations. Also since there are covenants written into the loan documents that in a debt financing transaction can not be broken or you are in default it makes it extremely challenging to change anything after the fact. On the contrary in private placementsthose covenants are expected to be broken and it is acceptable as long as it benefits the overall project/business.
What is a better method of funding? I will leave it to the eye of the beholder. As a borrower here are a few links to the London Financial Website for more info.

http://londonfi.com/borrower.html

http://londonfi.com/broker.html

http://londonfi.com/about.html

http://londonfi.com/index.html

http://londonfi.com/forms.html

http://londonfi.com/contact.html

An excellent study was done by the Federal Reserve and can be downloaded here.
http://www.federalreserve.gov/pubs/staffstudies/1990-99/ss166.pdf

Creating a profitable commercial lender in this market BY: Douglas Schulman and Hunter Hebert, London Financial Capital

Hunter Herbert (London Financial Capital) — Wed, 02 Jul 2008 18:34:55 -0500

Creating a profitable commercial lender in this market

This is a conceptual idea on how to create a profitable commercial lender while protecting all parties involved. There are four separate groups that would need to be aligned to make this work but if you were able to put all four together it would create large revenues for each one. The four parties that need to be aligned are:

Commercial Lender- Take in the transactions from a retail perspective, validate transaction through due diligence, writes the loan and table fund it. Generates fee revenue at closing & YSP from the sale of the loan.

LC Provider- Would provide the credit lines to the Commercial Lender, generates profits from loaning out funds on short term basis

Insurance Company- Insure the loans AA or higher rated, generates profits from the premium collected

Loan Servicer- Services the loans and generates profits from YSP and interest collected

Here is a more detailed description of the process:

The objective to both the LC lender, and the mortgage company is to create a profitable business relationship. The LC lender can make secured credit (or lines) available to the mortgage lender thereby enabling the funding of approved high return mortgages that have been underwritten according to stringent guidelines including "double-value-collateral." The mortgage company will be able to generate substantial origination and resale income plus profitable spread on each mortgage enabled by the LC line and pass along the agreed upon share of those profits to the LC Lender.
Servicing the Note: All loans made against the LOC will be structured as a 12-24 month balloon note. The first 12 months of interest are withheld from the loan at rates between 15%-18% and are held in the mortgage company's account to service the loan until it is sold. The monthly interest that the mortgage company escrows will be equivalent to the entire term of the note at the cost of carry.

To make the LC lender secure, it must have four items pledged and/or managed for it:
1. A marketable first lien mortgage in which it can obtain unrestricted title.
2. The mortgage to be either
A) Pre-sold to a permanent mortgage investor limiting the time exposure and transferring any risk from the Mortgage Lender (and by function, the LC Lender.)
B) Portfolio positioned during a brief period of CONTRACTED and BONDED collateral enhancement and/or loan pre-refunding. Collateral enhancement means improvements to the property that significantly increases the market value of the first lien mortgage. Loan pre-refunding which means cash moving into escrow securing the first lien mortgage due to Bond or Bond Anticipation Note issuance thereby DRAMATICALLY increasing the market value of the first lien mortgage.
3. Complete control of the funds via Title Escrow on the sale to the permanent investor on pre-sale transactions (A above;) or strict Loan To Value funding adherence on land collateral and bonded developmental improvements on portfolio positioned transactions (B above.)
4. Escrows of Interest due the Mortgage Lender on each loan made enabling sure funds for the servicing of the LC/Monthly Note.
Please Note: The loans are approved prior to funding and specific closing instructions are given to the title companies instructing them to close the loan only when the mortgage is a first lien with a good and marketable title.

Pre-sold loans- Loans that the mortgage company has identified and secured a buyer for prior to funding.

1. The key is to identify current issues in commercial paper market
a. Shortage of buyers of loans
b. Most lenders do not portfolio
The mortgage company's solution is to insure commercial paper to create high yield guaranteed paper. AA or higher insurance rating opens up an entire new group of buyers eliminating liquidity issues that exist in current commercial market. The mortgage company will now be selling insured paper with added value feature of first lien position and the mortgage company should yield a higher premium for the additional benefit.

2. Due to the buyer being identified prior to funding the loan and due to the price being set, the mortgage company maximizes revenue on the transaction and draw down time would be kept to a maximum of 72 hours.

3. Insured paper brings stronger buyers to the table that are very liquid and have infrastructure in place to service the loans-therefore providing a quick close. Current commercial buyers utilize short term notes where insured paper buyers purchase longer term debt thus creating a better range of products to offer borrowers and structure higher IRR for the mortgage company.

4. Insurance policy covers investors' loss in the event that the loan defaults and redeeming the foreclosure does not satisfy payoff. Insurance policy is leveraged to cover difference to provide full payment to investor. Premium cost is passed through to borrower as a closing cost, thereby not diluting the mortgage company's profit margins.

Portfolio Loans- Loans for development purposes that are Municipalities or Municipal Issuers and can issue tax-exempt debt. The mortgage company is only putting loans in our portfolio where the Borrower controls both sides of transaction such as an improvement district: Borrower owns the collateral and controls municipal debt. This occurs when municipal issuer benefits greatly by the development of its infrastructure within its boundaries. A Development loan backed by a large amount of cash subsequently place in escrow from a follow-up municipal financing trades at a high premium due to cash.

1. This unique scenario creates an opportunity to mimic a bond pre-refunding type of transaction. A development project that has amassed a large amount of cash and has municipal debt outstanding trades at a high premium due to cash reserves backing the bonds. The mortgage company will structure the development loan so as to benefit as the bond re-imbursement proceeds flow in; this enhances the creditworthiness of the loan increasing market value.

a. The mortgage company Portfolio Loans are cherry picked and only the best of the best will be put in the portfolio limiting these transactions to between one & two loans per annum.

2. The loan is saleable at any time. We are purposely holding the loan to allow the Note value to continue to increase from development of project and to escrow bond proceeds. At which time, the Note can be a sold at a premium, much higher than the cost associated with holding the loan in portfolio.

3. MAC Clause (Material Adverse Change) Clause. This feature will be included in the loan design and documentation. It assures that if the LOC is revoked, the security instrument is subject to call and the mortgage company will have the ability to escalate nominal interest rate in order to get loan sold. This will also shorten the term because the new rate will deplete interest rate reserve quickly. The MAC clause can be removed at time loan is sold at buyers' option but it is an enhanced safety feature for end investor & LOC provider.

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