October 2018 Repeated

Dear investors:

Please, please, please email all issues, concerns, complaints, questions, comments, etc etc to investorhelp@capellamtg.com.  Please note that it is “capellaMTG” not “capellaMAIL”.  What this does is create a support ticket in Salesforce and it allows me to track the issues that are being sent our way.  It has actually been the only way I have known about some of the things you are discussing with Sherry.  All of us see these cases, and we can all work on them, if someone is out of the office. This is the ONLY way to get assistance with any questions, issues, foreclosures, etc.  From these support tickets, we can instantly email you and we can see everything that has been done on the case.  Emailing Matthew and I will not work anymore because there are way too many emails sent our way, and then there is no tracking mechanism.

We are starting a mortgage fund.  Yes.  We are. There are a lot of advantages to having a mortgage fund and there are some disadvantages.  But we have a very very large list of loyal investors who trust us and who like the investments we bring your way, and many title companies (BOTH First American and as of 4 weeks ago, Fidelity) and many state laws that are making it extremely difficult to get the type of title policy and endorsements that we require.  Some of the states mandate that we either have less than 10 investors or only 1 investor in a loan.  Just the past two months, we have had 4 loans that the title company refused to insure because we wanted an extended policy. For the past two years we have struggled and fought with the title companies to give us our extended policies (which cover unrecorded matters) and we have lost many of those fights.  If we lend in the name of “Capella Mortgage Fund A” then we get the extended policy.  We like that.  If we lend in the name of Capella Mortgage Fund A, then we run into fewer state regulations. If we lend with a fund, then we have a mechanism for investors to go in and out of loans easier.

  • The biggest advantage for investors (especially our smaller investors) is that they can invest money into multiple loans, spreading their risk, and even with a few foreclosures they can still get the target rate.
  • We will not stop doing traditional trust deeds in the states that allow trust deed lending, but there will be requirements.
  • The biggest disadvantage is that investors will get a lower rate of return.  Most of the funds right now are in the 8-9% range.  We are consulting with Geraci Law to see what type of return we can offer, but we are hoping that it is north of 10%. We want to offer the maximum possible as we are also investors, but we cannot overpromise and underdeliver.  We have been able to hit an average rate of 11.5% and higher each of the past 10 years, but the market is pushing hard money rates downward while traditional mortgage rates are rising. Since we are now under price controls (aka Dodd Frank), and since the economy is better, everyone thinks that hard money should be the same as a Fannie/Freddie loan!  The institutional lenders are offering fix and flips at 90% of purchase price with 100% of the rehab cost at 9% rates.  That leaves fewer “out of the box” loans for us to grab, and we have to be way more diligent in our discovery and investigation, and we have to be more price conscious.  Whereas we used to get 5 points all day long, now the majority of our loans are at 3.5%.  When we find a deal that has a better rate of return, we want to be able to fund it without jumping through a bunch of hoops with the title company and that is one big advantage to a fund.
  •  Matthew and I are attending the Certified Fund Manager class next week which will give us a designation of CFM and we’ll know a lot more then.  We just finished a webinar by Geraci on mortgage funds and our goal is to minimize the reasons investors don’t like funds and maximize the advantages of funds.
  • Our main objective is to be legally compliant in all states so we can continue to take advantage of some pretty amazing deals.  We have a huge web presence, our phone rings all day, but we are limited to what we can do, and we are limited as to what institutional investors we can get.  For example, institutional investors do not want to invest in individual trust deeds.

Our mobile app is almost ready. You will be able to download it from Google Play or iPhone App Store. This means you will be able to receive notifications of new loans, send messages to us, reserve loans, view documents – all from your phone. Yes, the security is in place. However, you will not be able to see documents except for the generic documents that do not contain personally identifiable information.

In fact, we are making another change.  Due to the extreme amount of identity theft going on in the world, and the absolute perseverence of the bad guys to steal data, we are going to stop showing tax returns and bank statements and any documents with personally identifiable information on them, as redacting would take a huge number of man hours.  However, if you look at the loan applicaiton (1003), you will see the amount that the borrower makes and the number of liabilities and amounts in their bank accounts.  The account numbers and SSN’s are being changed so that they are only partially shown. A data breach is too serious and has huge consequences and we cannot accept that risk anymore despite state law.  If you have to know something about a borrower’s bank statement or tax return, call us, chat from the website or portal or email investorhelp@capellamtg.com and we will discuss the documents with you.  You can also visit our office to view the documents.

FYI, it is now policy that we pull credit reports AND Lexis Nexis background checks on almost every loan.  Matthew and I both review those.  That is why we sometimes turn down loans that look perfectly fine.  You will not have access to those either, but we are happy to discuss the results with you.

That’s it for now.