Mortgage Alternative Program
Eric L. Frazier, MBA National Sales Manager NMLS#461807 Intercap Lending Office: 800-261-163 x 703 Direct: 714-475-8629 efrazier@intercaplending.com
Business Partnership Opportunity 2014 Elizabeth Shermerhorm, Business Development Manager
Cove’s Mission - Transforming Home Ownership
Cove Financial Group Inc. (“Cove”) is a real estate investment company operating in 16 states1 that purchases and then leases and sells single family residential (“SFR”) homes through its Mortgage Alternative Program (“MAP”)
1. Cove currently offers its MAP in AZ, CA, CO, FL, GA, IL, MI, MN, NV, OH, OR, PA, TX, VA, WA, WI
Cove’s Mission - Transforming Home Ownership MAP is an innovative “lease and later own” program that features a standard form real estate purchase contract, a lease and a proprietary purchase agreement with an escrow period of up to 6 years, giving customers time to cure the issues preventing them from getting a mortgage while enjoying many benefits of home ownership
1. Cove currently offers its MAP in AZ, CA, CO, FL, GA, IL, MI, MN, NV, OH, OR, PA, TX, VA, WA, WI
Cove’s Mission - Transforming Home Ownership • Customers may close escrow and buy the home from Cove at any time during the 6 year period, at the SAME PRICE Cove buys the house for today!
• Cove expands the market for Lenders and Real Estate Professionals by buying homes TODAY • Cove is well funded to purchase homes ranging from $150,000 to $2 Million – $250 Million joint venture investment fund purchases property 1. Cove currently offers its MAP in AZ, CA, CO, FL, GA, IL, MI, MN, NV, OH, OR, PA, TX, VA, WA, WI
What is the Market Opportunity ? • •
Massive dislocation in home ownership rates caused by financial recession Over 50 Million households potentially affected by tightening credit markets Home Ownership % is 4% below “normal”*
Source: John Burns Real Estate Consulting, LLC.
Impact of Foreclosures on the Market Opportunity Foreclosure volume has decreased since the crisis but is still above pre-crisis levels, leaving a large pool of potential MAP customers Foreclosures Since 2005 3,500
3,000
2,825
Tthousands of Homes
2,500
2,872
2,330
1,888
2,000
1,500
1,837
1,362
1,286
1,000 718 533 500
0 2005
Sources: CoreLogic, Zillow
2006
2007
2008
2009
2010
2011
2012
2013
MAP Helps Customers Locked Out of Home Ownership Who Are MAP Customers? They are consumers that . . .
• Have had a recent foreclosure, short sale, bankruptcy or credit problem • May be self-employed and need to use bank statements to verify income • Able to cure credit issues and qualify for a mortgage within 6 years
MAP Helps Customers Locked Out of Home Ownership Who Are MAP Customers? They are consumers that . . .
• Are tired of renting for both emotional and economic reasons and ready to purchase today, if they could • Eager for more stability in their living situation
MAP’s Core Target Customers Include:
Family Recovering from Financial Crisis • Credit: Low to mid range • DTI: High 40’s • HH Income: Greater than $100K • Purchase Price: $150K - $500K
The Professional • Credit: Mid range • DTI: Low 40’s • High monthly income and capacity to pay • Purchase Price: $750K - $2MM
Why they don’t qualify: • Bankruptcy coinciding with job loss or divorce • Foreclosure • Loan modification failed
• Self-employed • Foreclosure on investment property
Sources: Mortgage Bankers Association; US Census Bureau; Fair Isaac Corp., SBA.gov, Federal Reserve, Corelogic REAS, U.S. Courts Bankruptcy Statistics
The Entrepreneur • Credit: 700+ • DTI: Low 40’s • Limited W-2 income • Purchase Price: $220K - $2MM
• Complicated K-1 reporting • Self-employed • Limited W-2 income • Foreclosure and/or high DTI
Coves “Average” Customer
–FICO 640 –HHI $174,000 –DTI 40% –20% Will Cure in Year 1 –80% Will Cure in less than 3 years
MAP Overview: Innovative “Lease and Later Own�
Customers lease and live in the home of their choice today while they seek to qualify for a mortgage to purchase the home in the future at a locked-in price
MAP Overview: Innovative “Lease and Later Own” • Customer and Cove enter into two 6-year term agreements: – Lease Agreement with locked-in monthly payments*
• Not locked in lease – Purchase Agreement with purchase price lockedin* • 6 years to purchase • Escrow opened with a national title company * MAP offers more than one purchase price & lease payment option; all payments are locked in for the 6-year period.
MAP Overview: Innovative “Lease and Later Own” • Purchase agreement is “recorded” giving public notice on title – This is the next best thing to being on Title & owning the property • Customer can close escrow and purchase the home from Cove at any time during the 6-year period
* MAP offers more than one purchase price & lease payment option; all payments are locked in for the 6-year period.
MAP Customers Need Three Things To Qualify
The capacity to make a down payment, capacity to make monthly payments and to show high probability of qualifying for a mortgage within the next six years
MAP Customers Need Three Things To Qualify
• Down Payment –5% to deposit in escrow (held fbo consumer)
–3% to Cove to pay the transaction fee • Monthly lease payments consistent with the purchase price of selected home (comparable to a 30-year fixed mortgage payment with PMI)
• On path to qualify for a mortgage • “Time to cure/season”
Typical $300,000 Cove Transaction 5% Deposit, Fixed Rent & Purchase Price
16
Typical $400,000 Cove Transaction 5% Deposit, Fixed Rent & Purchase Price
17
The Economics and Value Proposition Projected appreciation average over 36 months Rate
3%
6%
8%
10%
12%
15%
20%
25%
300k
328
359 381
404
429
469
543
630
350k
382
418 444
471
500
547
635
735
400k
437
478 508
539
572
625
725
840
Price
The price represents the original purchase price by Cove. The Buyers purchase price will include a 1.5% fee on the original purchase price. Rates of returns are estimates and are not guaranteed.
MAP Gives Customers Peace of Mind, Security, Upside • Consumers get to choose their school district, neighborhood and can customize home • Recorded Memo of Purchase gives legal notice on title of consumer’s intent to purchase • Lease and purchase deposits held in FDIC insured bank for the benefit of the consumer
MAP Gives Customers Peace of Mind, Security, Upside • Consumer has ability to get out of the purchase contract if needed: o If the home is worth more than the price to buy from Cove, the house can be sold, pay off Cove and consumer keeps UPSIDE! o If not, pay 3% breakup fee, get remainder of deposit back
MAP Examples: Limited Downside, More Upside Customer closes escrow in year 1-6, home is then worth more than the price to buy from Cove = upside to customer •
• Customer has a need to get out of the contract, home is then worth more than the price to buy from Cove, customer sells house, pays off Cove = customer keeps upside
MAP Examples: Limited Downside, More Upside • Customer has a need to get out of the contract, home is then worth less than price to buy from Cove = customer pays only 3% break-up fee, remainder of deposit returned • Housing market declines 20%, result is the same as above. • Once in the program, maximum downside is 3%.
MAP: Incremental Benefits to its B2B Partners
• Real Estate Professionals • Cove can act quickly if a lender falls out • Cove pays all cash for purchases which facilitates the purchase process • Cove retains a licensed real estate agent for SFR purchases and pays full commission
MAP Transaction Process Steps Step 1
Lead Origination
Step 6
Approval to Shop
Step 2
Lead Qualification
Step 7
Offer
Step 3
Application Sent
Step 8
Escrow
Step 4
Application Received
Step 9
Cove Purchases Property
Step 5
Underwriting
Step 10
Customer Purchases Property from Cove (0 – 6 years)
Why Trust Cove? • Cove has a track record of buying millions of dollars of Single Family Residences
• Cove retains licensed real estate professionals and does not act as its own broker
What Kind of Homes ???
Sample Colorado Homes
Arvada CO $520,000
Aurora CO $345,000
Erie CO $390,000
Highlands Ranch CO $420,000
Sample Nevada Homes
Las Vegas NV $200,000
Las Vegas NV $325,000
Las Vegas NV $245,000
Sample Texas Homes
Austin TX $495,000
Dickinson TX $273,000
Flower Mound TX $319,500
Frisco TX $435,240
Grand Prairie TX $341,760
Tomball TX $420,000
Sugar Land TX $295,000
Sample Arizona Homes
Queen Creek AZ $365,000
Queen Creek AZ $400,000
Glendale AZ $416,500
Chandler AZ $300,000
Gilbert AZ $423,000
Sample California Homes
Fontana CA $485,105
Temecula CA $510,000
San Diego CA $887,000
Encinitas CA $1,265,000
El Dorado Hills CA $703,193
Rancho Cucamonga CA $680,000
Sample Washington Homes
Puyallup WA $371,950
Federal Way WA $408,775
Gig Harbor WA $555,000
Camas WA $500,000
Seattle WA $354,000
Mortgage Alternative Program
Eric L. Frazier, MBA National Sales Manager NMLS#461807 Intercap Lending Office: 800-261-163 x 703 Direct: 714-475-8629 efrazier@intercaplending.com