Purchase program
 
I.  Benefits

• Provides the developer a solid source of ongoing financing for current and future projects
• Allows the developer to sell paper with high loan to values (up to 90%) without considerable discounts
• Allows the developer to work out the appropriate price for a lot before it sells, to pre-approve credits of buyers and to properly structure the seller financing paper with the buyer
• Allows the developer to work on a cash-cash basis

A.   Developer has to agree to the following general terms:

• 10% reserve to be held by a funding institution (this account is non-interest bearing and paid back quarterly based on principle reduction of the loans)
• Yield requirement for a funding institution to be Prime + five percent.
• Full recourse guaranty, which can be set up in two ways:

(a)  Buy back non-performing note
(b)  Replace non-performing note with good and working note of equal value
 
• Fee agreement established between broker and developer
• Set up fee $148.00 per loan

• Financial statement both personal and corporate for the last two years
• Tax returns both personal and corporate for the last two years
• Project information including HUD reports and title
• Spreadsheet of all available paper
• Reference letters from accountant, banker, or attorney
• Resume if available

• The note will be discounted only to $17,126.43 (Yield 13.25%, ITV=85.6%)
• There is a reserve of 10% which in this case equals to $1,800
• Fee agreement is 2% or $306.52
• The total amount the developer would receive up front is $15,019.91 (ITV=75.1%) and the developer will still get the reserve back, so the total receivable will be $16,819.91 or 93.44 cents on the dollar

 $20,000.00   Sales Price
 $2,000.00 Down Payment
 $18,000.00 Note Balance
 $17,126.43 Discounted to 13.25%
 $1,800.00 Reserve
 $   306.52 Broker Fee
 $15,019.91 Developer receives at closing
 $16,819.91 Developer receives after reserve is paid back

I.   Hypo benefits:

• Tax Deferral (loan, not a purchase)
• Developer still owns the loans
• Less paperwork and faster closings
• Contracts need not be converted into deeds of trust
• Loans can be bought by the lender off the line to pay down principal balance of the loan

• Rates are set at Prime + 4 or 5 with a 12% floor
• Maximum advance is 75% of the loans pledged
• Lender origination fee is 1 to 2 points
• Term of the loan is 5 to 10 years
• Other charges are $25 set up fee per loan, and a $6-8 per month per loan serving fee

Developer has 100 notes that have a total monthly payments of $21,247.04 and a value of $1,000,000. The lender will provide $750,000 to the developer who pledges the 100 notes to the lender. The lender creates a loan that amortizes over five years and has a monthly payment of $16,778.24. Now the first $16,778.24 of the monthly pay of the 100 notes belongs to the lender, but the remaining $4,468.80 belongs to the developer and pays down the principle balance and fees. After the loan is paid off all remaining balances on the notes revert back to the developer.