Mortgage Resolution Trust Fund An opportunity to profit from the liquidity crisis currently affecting the residential mortgage market.
Robert Pilcowitz
Legal Disclaimer: This information contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and in Section 21E of the Securities & Exchange Act of 1934. These forward-looking statements are based on various assumptions and actual results could differ materially from those set forth herein. Each investor in Mortgage Trust Resolution Fund (“MRTF”) must qualify as an “accredited investor” under the United States Securities Act of 1933 and such investor must confirm that it has such knowledge and expertise in financial and business matters as to be capable of evaluating the merits and risks of the investment. Each investor acknowledges and confirms that an investment in MRTF represents a speculative investment with a high degree of risk, and he is able to bear the economic risk of loss of the investment.
This information is being provided on a confidential basis to potential partners, investors and lenders who qualify as accredited investors and qualified purchasers as such terms are defined by the Securities Act of 1933 and the Exchange Act of 1934. This document is the property of Prime Residential Funding, LLC, the investment manager of MRTF, and by acceptance of this document the recipient agrees to keep the information confidential and also agrees that it may not be disclosed, distributed, or reproduced without the express, prior written consent of Prime Residential Funding, LLC and MRTF. For more information, please contact: Anthony Rivera Prime Residential Funding LLC 101 W Big Beaver Rd, Ste 1400 Troy, MI 48084 Tele: 248-687-1162, Fax: 248-687-1163 Email: arivera@primerf.com
_______________Executive Summary_______________
Mortgage Resolution Trust Fund (the “Fund”) is a private investment partnership created to profit from the liquidity crisis affecting the residential mortgage market. The focus of the Fund’s strategy is the acquisition, servicing and disposition of high-quality performing mortgage loans at distressed pricing. By conducting exhaustive underwriting, diligent servicing and taking advantage of market inefficiencies, the Investment Manager expects unlevered returns in excess of 15% per annum.
________________Market Overview________________ During 2002–2005, the lowest interest rates in history, expanded lender guidelines for all credit tiers, a robust economy and U.S. housing market fueled the largest refiboom in decades. Late 2005, mortgage pools that once traded in excess of 103% settled for below par. Over 262 lenders ceased operations since 2005 Delinquency and foreclosure rates for certain loan types and geographic areas are at record highs in the 1Q2008 according to the MBA National Delinquency Survey Illiquid market for conforming loans rejected by agencies, all alt-A, and subprime loans including performing and non-performing loans Significant number of homes have secondary financing with CLTV in excess of value Government insured (FHA, FNMA, FHLMC) is only liquid market Banks and other institutions forced to mark portfolios to market and incur losses quarter over quarter causing forced sales of mortgages Economic forecasts indicate continued market dislocation RESULT: Excess inventory creating substantial discounting of agency, alt-A, jumbo and subprime mortgages
_______________Market Opportunity_______________ Banks and securities firms have taken around $387 billion of write-downs and credit losses since the beginning of 2007, as the collapse of the U.S. housing market led to losses on securities tied to the value of home prices Regulators expected to force investors to liquidate unsold paper in the 3Q2008 to 1Q2009 period due to capital requirements Banks, securities firms and other holders of this mortgage paper are not distinguishing certain types of loans (i.e., fixed vs. ARMs) Pristine loans with borrowers living in the homes long-term having perfect mortgage history can be acquired at distressed pricing Eligible loans can be refinanced through existing Government programs and expected expansion of FHA,FHMLC,FNMA programs These factors and the continued liquidity crisis, deterioration of credit markets and lack of secondary market will create pricing anomalies that MRTF will exploit
___________________Strategy_____________________ Unlike other funds acquiring non-performing (“dead�) loans, MRTF will take advantage of current market dislocation to acquire performing loans at distressed pricing Full re-underwrite of each borrower, collateral and mortgage by in-house staff
Target full-documentation, high-fico, fixed rate loans in certain geographic areas with limited or no delinquencies using conservative valuations Refinance by FHA, FNMA, FHMLC including short payoffs where possible
Sell and hold performing mortgages as liquidity crisis eases Utilize industry contacts to source and sell mortgages
_______Exploit Pricing and Underwriting Anomalies______ Sellers are separately bucketing non-performing and performing loans without further distinguishing performing loan level attributes Fixed rate, full-documentation, long term homeowners without secondary financing are less likely to default Sellers not considering FHA eligibility and possible expansion of Fannie Mae, Freddie Mac and FHA when selling or pricing distressed assets With liquidity sources dried up right through the entire funding channel, there is a market to buy large quantities of paper which is more likely to perform
__MRTF management has extensive mortgage experience__ Management team very experienced in the mortgage industry with deep relationships to source assets for purchasing; wealth of experience in underwriting and market assessment; strong servicing capability; proven business operators Robert Pilcowitz Mr. Pilcowitz is the founder of Prime Residential Funding, LLC, the investment manager. Prior to founding Prime Residential Funding, LLC, Mr. Pilcowitz was a co-founder and CEO of FMF Capital, a national wholesale mortgage lender. Mr. Pilcowitz was also a co-founder and Chairman of Franklin Security Bank, FSB, a federal thrift. Mr. Pilcowitz has a business and law degree and was a senior partner with a concentration in tax at a Michigan law firm . Anthony Rivera Mr. Rivera is the senior managing director of Prime Residential Funding, LLC. Prior to joining Prime Residential Funding, LLC, Mr. Rivera was the Executive VP and General Counsel at FMF Capital. At FMF, Mr. Rivera was responsible for all aspects of the secondary and capital markets for the firm. Prior to FMF, Mr. Rivera practiced as a CPA and attorney for various national firms and companies. He has extensive experience in corporate matters, structured financing, and mergers and acquisitions. Mr. Rivera received a BA in business from Michigan State University and his law degree from the University of Michigan. Licia Beemer Ms. Beemer is the chief credit officer of Prime Residential Funding, LLC. She has spent more than 15 years in the industry and has extensive underwriting and credit experience. Prior to joining Prime Residential Funding, LLC, Ms. Beemer was a VP at FMF Capital responsible for investor relations and managing FMF’s secondary market group. She previously held the position of managing director of underwriting and senior credit officer. Ms. Beemer received a BA in English from Hillsdale College.
________________Structure________________ Management committing $25 million of capital, subordinate to preferred investors and warehouse financing Seeking other preferred equity partners for additional $25 million Warehouse line of $150 million provides leverage of 3:1 3 year expected life: – First year to complete $200 million of purchases – Continual refinancing, restructuring, and servicing loans – Second year hold period to allow market to recover and seasoning of acquired loans – Third year selling period – Return of capital with profit participation scheduled for 36 months
_____________Partnership Benefits____________ Experienced capable management team Managers have substantial capital committed
Exploit opportunity for buyer-favored pricing during market dislocation Alignment with tier 1 bank provides warehouse line to lever returns as well as potential product and exits High projected IRR (20% +) Management capital is fully subordinate and provides substantial cushion
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