0:00
Everything we do is done with a social impact in mind. Our mission is work with these families who are struggling with their mortgage in order to find sustainable solutions that oftentimes other lenders are not willing to consider.

0:15
This is a story about a dude named Lane he moved to the mainland and bought one place to stay. And then one day he went try to rent them out. And then he became one real investor.

0:30
Hey, simple passive cash flow, nation. This is George Newberry again, doing another webinar. A few years later, we met what back in 2016. I’ve been investing in hp. Since then, I’ve got about enough money to put in there to get my car payment paid for me for the last three years. So thanks. Thanks for that,

0:56
George. You’re welcome. I hope you’re enjoying the car.

0:59
Yeah. It’s been a couple of cars, but the money keeps coming in every month to pay for that. So we are going to be talking about HP servicing. And the you guys are buying some new notes. And we’re opening the fund to new investors. So this is a reg a plus offering, which also includes non accredited investors, and accredited investors. And we can mass market this since you have the right filing created. But I’ll let you drive from here. And if anybody has questions, you can type it into the question and answer box and we’ll go from there.

1:37
Absolutely. And so I’m going to go through about eight slides just kind of give everyone anyone who’s new a history of HP, and also for the and then provide some updates and our visions for the future. Especially for those who are existing investors in order to know so and then at the end, any questions you have, I’m here to answer them all and And I appreciate your interest just to correct a little bit on on linear. I appreciate your introduction. The fund has actually been reopened since November. This is the first time we’re actually

2:13
reaching out, raising awareness again.

2:18
In order to because we see a new, we have a pool that we’re trying to close next week and there’s a couple of other pools that we are working on for April. So we are trying to back into capital raising mode on a on a decent scale. So I appreciate the introduction again, lane. My name is George Newberry. I’m the founder and CEO of both American homeowner preservation and HP servicing. And I’ll share a little bit about us. So American homeowner preservation we started 12 years ago in 2008. We’re a nationwide purchaser of non performing mortgages, particularly those secured by homes in low to moderate income neighborhoods, and many times we’ve discovered heard that the largest banks in Wall Street don’t like to deal with the lower balance loans and they’re more prone to selling those at margins that we can generate good returns on. When we started buying loans, we were advised that we need to use a licensed servicer to service our loans and we went through we started out with a company called a resurgence servicing and then we went to a company called face servicing, which is here in Chicago. Then we went to FCI. Then we went to sn servicing then we went to home servicing then we went to land home, BSI Carrington. And every time I thought that this service so we’ll be the one that provides the service that matches what we’re expecting and every time we were disappointed, so, in 2017, it was kind of like we’ve used every service or none of them has performed To our expectations, and we talked to other note investors and funds and they share lamented about the same problems with their servicers that they’re just not that great. So the thought was we needed to become or we decided to become HP create our own servicer. It’s HP servicing. It’s a nationwide mortgage servicer, and we service loans, both those loans that are owned by HP, as well as loan loans owned by third parties. We have dozens of third party clients. And when we service, we still are executing the same vision we had originally which is to treat homeowners to treat homeowners with respect and to especially in low to moderate neighborhoods where many times Wall Street kind of neglects the needs. So the customization of workouts for them we’ve strived to deliver solutions that homeowners find very favorable, but also just Generate solid returns for investors. And over the years we’ve keep kept thousands of homes and thousands of homeowners in their homes, we put thousands of vacant homes back into service, we’d extinguished hundreds of millions of negative equity. And today, millions of dollars annually are being saved by homeowners on their payments as a result of HPS intervention. Here’s the timeline.

5:25
Well, let me let me kind of just so we don’t lose any investor. Sure. You know what, so what George and his team does is they buy mostly non performing notes. So we all those of us who are homeowners, you know, you have a mortgage, and that is paper. So investors can actually sort of buy that paper from the bank who originates that paper. In some cases, I don’t know what percent of the time they go non performing, that the person is sort of naughty and doesn’t pay their bills and it turns into a non performing note. And that is where someone like George can go and buy them in huge lots. I mean, how much is this next slot? You’re gonna buy like,

6:11
million this this? Yeah, it’s a few million dollars, but it’s higher value home. So it’s 27 loans, totaling about $8 million in debt.

6:20
So they’re gonna buy it at a huge discount. And what George does with his service, he heard that word earlier servicing company. The servicers are the ones who call the homeowner and say, Hey, man, you know, you’re you’re behind on your payments, what’s going on? You know, can we come to work on an agreement since we bought at a discount, there might be some margin for you know, keep you in that home and you may be lower your payments or work something out. So it’s kind of a win win situation all the way around. And we’re also you know, investors in the fun. Of course, they get theirs too.

7:00
That’s great. I appreciate you sharing that sometimes. I get in the thick of this and I forget it. People don’t realize a lot of thing. A lot of people it’s difficult to imagine, initially, that, you know, somebody owes Chase Bank $100,000 and Chase Bank decides to sell that loan for $50,000 for whatever reason, and that’s not uncommon. Now the question is what happens to the other 50,000 it’s still due from the homeowner, but Chase has written it off. It’s it’s gone to them. And now we bought it for 50,000. And we can, if the homeowner wants to stay, we can provide a modification that oftentimes can reduce the principal can forgive some of the delinquency reduced the mortgage payment and still generate a good return because we bought it for 50 when they really owed 100. And the same is if they don’t want to stay the home in the home or it’s already vacant. We try to track him down and offer them cash for a deed in lieu When we get that, then we sell the property and you know, they’re buying, they owe 100, and we’re buying it for 50, it’s probably worth 90, you know, the home’s worth 90. So actually, more commonly they owe 150, it’s worth 100. And we’re buying it for 50. So the discounts are pretty substantial. And that’s because people, banks are looking at it, okay, if we spend a year or more to foreclose on this, and we spend all these legal fees and taxes and other holding costs, those are going to cost us this plus time and effort, it’s better just to take some take those losses now and reduce it and and sell it to HP or any of the other number of funds that buy these types of loans. So to give you the history, when we started in 2008, we were actually a nonprofit organization, we received our 501 c three from the IRS. We would advocate one by one for the homeowner with their different lenders, and we discovered that the lenders and the servicers were not quick to resolve these loans not quick to respond. To request oftentimes, requests that were very fake provided favorable outcomes for the lenders. So that led to us becoming a for profit and deciding to buy these mortgages. So then we could control it. So the banks regularly sell mortgages, oftentimes in large pools, and it could be banks, hedge funds, other lenders, and they’ll sell those on stocks, and then we would buy the loans and then reach out to the homeowners through our servicer. And initially, we started a hedge fund. It was accredited investors only it was reg D. fairly simple to set up. And we would raise money from friends and family. We couldn’t advertise. We couldn’t even really speak to the media. And that’s what we did initially. And that went well. But when I heard about crowdfunding in 2013, I said that’s a great way to expand our audience. So we started using 506 C, which allows us to generally solicit more and essentially market the the offering go on Lane’s podcast simple passive cash flow and and share the opportunity freely and we We started doing that in 2013. But there was one big restriction was that even though we could tell everybody about what we’re doing, and market our fund, we could only accept investments from accredited investors. And we had a lot of non accredited investors come to us and they would sometimes even show up in our office with good size checks that we could not accept it. So that was frustrating. And in, but when we heard about regulation, a plus, which allows us to crowdfund from not only accredited and non accredited, credited, we promptly engaged an attorney to go through the SEC qualification process. And in 2016, we were the 16th company in the country to raise money utilizing Regulation A plus, opening this to non accredited investors. That grew a lot in our first month of operation. This is the 2015 A plus fund we raised about half a million dollars by the 24th month because the SEC allows you to raise money for 24 months, the 24th month we raised over $10 million. So In one month, so went from 500,000 to $10 million in two years. So grew, grew and grew. Uh, this was so that fun close 2015, eight plus closed in, in May of 2018. And that was the fund that I joined in initially. That’s when we first met Lane.

11:16
Correct. And I’ve been investing ever since.

11:19
And I just want to say that the reggae plus offering is really cool, because now you can bring in non accredited investors. And as you were a non accredited investor at one time, George, I mean, you can, how do you get yourself? How do you get yourself over a $1 million net worth when you’re investing in garbage investments, right, like and that’s the frustrating part and you’re not allowed to invest in most deals. Until you are and no, it’s very frustrating. It’s a, especially today, think about how low the interest rates are. Today, if you go to the bank, you know, they’re gonna offer you on a savings account, something 1% and point, one point something that I’m And so it’s a very, it becomes very frustrating. So you can save and make very, very little. And there’s other other investments open and non accredited investors, but they’re typically lower yielding. And and you’re right, it’s tough to get ahead with that. So reggae is definitely something we’ve embraced. And we in fact, did our second Regulation A plus offering, which launched in November 2018. And that was for HP servicing. This one is a little bit different than 2015 a plus in that it had two purposes. One was to do what we had have always done, which is to purchase non performing loans at big discounts. But the second thing we were doing with the money that we raised was to build out a nationwide mortgage servicer. And that’s what we’ve endeavored to do. We’re still working on it. And there’s still a couple states as we’ll get to a little bit later that we’re working on approval on. And then finally, I want to share and I’ll share a little bit later more details. But this this last week, we launched a new product which is called pre Ario, which is a platform to connect local investors with holders of the faulted mortgages secured by baking properties in order to help address the problem of these vacant properties that are oftentimes sitting in limbo. And we’ve provided we’ve come up with a solution that appears to be getting some traction with some of the larger funds. And I’ll share a little bit on that in a few moments. So right now, here’s the let’s talk about the national service or so, as with many entrepreneurial activities, our pursuits, you know, we did not think it would take as long as it has to get this going. The servicing portion and also so it’s costing more and taking more customer money and taking more time. So here’s the big advantages to being a national service are one is as an investor in mortgages, we can much better control the disposition of our assets we can act nimbly and fast and to move things along. The other, move things along towards a resolution the other way. The other big advantage is the ability to generate feelings. So we are, this is an operating business where we’re charging fees to service loans for other funds and other mortgage holders. And we charge fees for doing that. And that fee income is there, whether it’s a we’re in a down market or an up market. So if things are going bad in the real estate market, and prices are declining, and there’s a lot of defaults, we charge fees if the market is increasing, and it’s tough to buy loans like it is today with good margins. And you know, the real estate market is strong, like it is today. Then we still charge fees every every time any of us who have a mortgage is paying that mortgage it’s to a service are typically in that service or is taking a modest fee. And but they do that times thousands 10s of thousands, hundreds of hundreds of thousands and even in some cases, millions of loans. And that’s how the mortgage servicer make money. So our challenges so far have been the licensing process which we started in mid 2017 is taking longer than that. expected, we’re now licensed in 48 states, plus Puerto Rico, the only two outstanding licenses are California and New York. And those are both in process. We believe we’re near the end of those. That process we’re in both states, but it’s still.

15:17
I wish it were today. I’m hoping it’s going to be in the next 30 to 60 days. And this is a startup we’re startup mortgage servicer with costs that are front loaded, we invest, we’ve signed a contract for almost a million dollars on our servicing technology, and a number of other personnel costs. That and other vendor costs in order to get this set up. So it is costing more and taking more time than expected. But the upside is we have a management team that we’ve attracted some of the top talent in the industry. The most recent hire started this week. He just came from Goldman Sachs. And so people are leaving much bigger companies to join HP because they believe in the vision and they can see a roadmap where this company is out. Very successful. We are transitioning to Black Knight servicing technology. This should go live next month in April. And one of the the impetus for this is some of the larger I should say most of the largest servicers in the country are using black knight technology. Now, it’s cost per it was cost prohibitive when we started. But it’s something that we’ve found is essential to us going forward if we want to scale as a servicer because many of the biggest funds in the country are using servicers that have like night, they’ve built different integrations with Black Knight. Even the regulator’s prefer Black Knight just because it’s something that they’re familiar with. So we made the decision to to move to Black Knight and getting those final two state approvals should open up. We should be able to get a lot of larger funds to say we’re going to service with hp. The other component to growing is getting government approvals so we don’t just service these distress loans like we’ve historically been doing but we can also service loans backed by the VA FHA, Fannie, and Freddie. So we did recently get our VA approval so we can now purchase and I’m sorry, we can now service and purchase loans that are backed by the VA. And we’re also working on getting the same designation for FHA, Fannie Mae and Freddie Mac. Finally, in December, we were designated as a minority owned business. And that is going to that should also help get additional government contracts. Plus, many banks, like Chase, for instance, have mandates to award some of the business to minority owned firms. So we believe that will also be helpful in our plans to grow. So ingredients to growth, there are two big ones. One is those two final states, I need to get California I need to get New York, we’re really focused on that and we need to get the blacklight technology fully implemented, that should happen the first of April, and then the green is to go big is to get those remaining government approvals. And then the probably the biggest factor is and what the original vision was, is that once we have the service are fully set up fully licensed everywhere and a downturn hits, we will be extremely well positioned to both act as a servicer for third parties and buy more loans, and service those and ultimately help more families. There’s many competitors that service 40,000 to 100,000 loans, you know, the typical servicing fee ranges from 20 to $95. That’s a big range. The reason for that is the 20 bucks, that’s probably a loan, which is just making a payment on time every month, it’s a performing loan, the $95 loan would probably be one or certain $95 servicing fee would probably be applied to a loan that’s in bankruptcy or has severe litigation. So that’s the range of servicing fees. But it leads us to a goal where we can get to 100 million dollars in monthly gross servicing fee revenue at some point in our future, and that’s that’s what we’re working towards. And that’s why we’re attracting the talent that we have Because we think we see a huge opportunity here.

19:02
So for those of us who are like rental property owners that $20 and $95 think of that as like the property managers take up, they’ll take like 10% of the gross revenue. They’ll also take half a month a full month’s rent of a new lease up fees to so don’t forget about that. But is that like, Is there a certain percentage that normally is if the mortgage they bring in or

19:26
the so lots of times on government loans, for instance, it’s 25 basis points. So if the mortgage is, you know, $100,000, they’re probably getting 25 dot $25 per month on that loan. As an example, with distress loans, there’s usually no monthly payments. So it’s typically just as a set fee, which could be often 40 to $95. So that’s what we see is the opportunity, you know, we’ve served with, I mean, we currently in New York, for instance, we have loans that we own in New York, but we can’t service them ourselves. So we use a third party which is called sn servicing artists. from them as a service about 40,000 loans and and then face servicing is in our building, we understand that they service over 100,000 loans. So it’s definitely a it’s definitely a business that’s always there can always generate income and the fact that this downturn is ever elusive because a year ago, I was thinking, Oh, it’s going to turn soon, it’s going to turn sooner and it hasn’t really turned. This enables us to in that interim generate fee income. And so here’s another another as we talked about fee income, HP 2015. A plus purchased a lot of loans in that were backed by the reverse mortgages backed by vacant homes, particularly in judicial foreclosure states, and this would be a state like New York where it could take two to three years to foreclose, even if nobody’s fighting the foreclosure. It’s just the process takes forever. So there’s a lot of incentive to find the bar and make a deal, but sometimes that can happen. The bar may have passed away the there may be a second mortgage which doesn’t want to make any kind of settlement deal. So you have to complete the foreclosure to get title the home could be a divorce, both parties don’t don’t agree. So any of those situations leave these vacant homes. Sitting in states, it could be New York, Ohio, Illinois, Indiana, Florida. There’s many other judicial foreclosure states where it’s going to take a year plus to foreclose. And this is a big problem for us and for other lenders. They will get a request from the city to cut the grass, shovel the snow board up the property to a registration, vacant property registration on the property the property could be subject to vandalism or their deterioration. So we have been scratching our head about how do we get a better solution to the these mortgages and we instead of just going through the foreclosure process when we can’t make a deal with a homeowner, and we came up with the concept of pre RTO and pre RTO is a site that just went live last week. It has Some test data has some real live assets on it, we’ve already actually sold a few. And what we’re doing is we’re trying to connect lenders such as ourselves with local investors fix and flip rehab buyers, real estate investors, like you probably have many in your audience. And they can buy these assets. And then what they’re doing is they’re buying a first mortgage, but we provide them a roadmap to do a few things that are unusual. One is to work with a law firm to appoint a receiver to take control of the property, repair it and lease it during the foreclosure process. And that is something where instead of that asset, that first mortgage, the mortgage holder having to pay taxes, insurance and other carrying costs and be at risk for

22:47
for vandalism and things like that. They can simply sell it at a price that’s attracted to them, because they’re eliminating all those costs and time and it’s also attractive to the real estate investor because they’re probably buying an reo at seven 25% of what, what it would otherwise sell for is an Oreo. They’re just getting it earlier in the process and the ability to go and get a court order by appointing a local real estate agent or property manager to become to take control of that property and lease it is something that’s unique and novel. And we’ve had a great response not from other funds about putting assets on there. Right now, there’s a couple of hundred loans on there. Mostly ones that we own, we expect in 30 days there to be over 1000 assets all over the country. And and the ones that are on there now are mostly low to moderate income neighborhoods, because those are mostly ours. As we reach out, there’s a lot of other lenders who have much higher value assets assets in California in the West Coast, which we don’t have many of that will soon be going on there. I think about the fix and flip lenders, a lot of the fix and flip lenders are getting a lot of defaults. So we’re pitching people to get their servicing but also to offer those assets through pre RTO. Now, fee income pre RTO is only By HP 2015 a plus. And it is we charge a $2,000 program fee for every asset is sold. So once again fee income which should be there, whether our ability to invest in distressed mortgages is is there or it’s not there we should be able to generate income from, from endeavors such as this. So I encourage you I gave a lot in about two minutes and that it’s a fairly, I guess it’s it’s a fairly detailed concept but I encourage people to go to pre RTO calm, especially if you’re a real estate investor. And if there’s nothing in your state like California or Hawaii, then you can create an alert as soon as there are assets in there then you will be notified. Now this investment now we’re back to investing in HP servicing and Layne has touched on a few of these things is why invest. Again, we’re open to accredited and non accredited investors the minimum entry point the minimum investment is $100. This is an you’re investing in a business you’re messing an HP servicing, which is uncorrelated to the market, we collect fees in a down market and and up market, investors get their share of profits first up to 10%. liquidity, if you need your money back, we will undertake our best efforts to liquidate the investment and get your money back within 30 days. Big Big Asterix on that though view if you actually the slides a little wrong here, so I’ll correct it. If it’s liquidated in the first year, the returns are reduced to 8%. In the second year, they’re reduced to 9%. If you hold keep the money in the fund for at least two years, then you get to keep the full 10%. And everything we do is done with the social impact in mind. Our mission is work with these families who are struggling with their mortgage in order to find sustainable solutions that oftentimes other lenders are not willing to consider. And so the investment right now if you were to invest, we’re going to be using those funds for Our next purchase, which the one we’re working on right now is has an acquisition price of just over 4 million. And here are the numbers that may kind of make this more tangible on that that $4.1 million will be used to buy 27 loans, the average debt is $331,000. The total debt is 8.9 million. The we’re buying those loans for the 4.1 which equates to roughly $154,000 per loan. The home values here averaged 272,000 and the total estimated home value 7.3. So think about that. We’re buying it for 4.1. The families Oh 8.9. And the estimated value of their homes are 7.3. So that gives you you know, we’re buying it at 3 million plus less than what the homes are worth, you know, $4 million plus less than what they currently owe. So we have a lot of flexibility when we go there’s homeowners too Try to make deals that are attracted to them. And if they don’t, we can’t make a deal with them, then we can go ahead and proceed with a foreclosure or sell it on pre reo, calm and still make a realize a return. So that is

27:17
the current focus. And again, we’re working on a couple of other opportunities for next month. This one we’re trying to close next week, mid March. The next two, we’re trying to close in April and we’ll share details as those come closer to closing. If you decide to invest, you can go to HP servicing comm you can invest without any. You can invest all online, the process is all automated. With the exception of IRAs. We do accept IRA investments, you can start the investment online but then we’ll have to do some of the process off the platform and one of our representatives will get in contact with you to do that. So that is what we’re offering now.

27:54
So with this, these deals, it’s a little bit different, like portfolio that you bought in the past no You’re kind of slumming it with 50 $100,000 houses. Right? This is a lot better paper.

28:08
cleaner assets.

28:10
I would agree it’s an odd right now we Yeah, let me backtrack for a moment right now we’re not competitively bidding. So we will find, if we’re just bidding against other people, it doesn’t really work that well, because so many people are willing to pay more than we are at this point in the in the market. However, we are looking for relationship type deals. This was brought to us it’s a modest sized deal brought to us by one of our our partners, and it’s, it was backed by these higher value homes. So definitely makes sense. We’ve done these before, but you’re right. Typically, they’re much lower value homes. But this one, the discounts are still there, even with the higher value. So I think it makes a lot of sense.

28:49
Yes. Like, what 5050 cents on every dollar is it for these nicer stuff?

28:55
Exactly. Well, yeah, they’re usually trading at 50 to 60 cents, sometimes even even Even more in today’s market.

29:03
So on the on like the lower class stuff like the 50 100 grand there, what’s like the average like 30 cents on the dollar, it used

29:10
to be around 30 cents and then it creeped up to 40. But now it’s some of those, those are even trading in the 50s. And that’s if there’s big issues where they can drop down to the 40s. But they’re just not that many left anymore that are that we can see at those types of price levels, you know, to come back, but it’s just not there today.

29:29
Right. So what George is trying to do here is he picks these properties up at 50 cents on the dollar. He turns around he gives the homeowner a call and says hey man, let’s make a deal. Let’s try and keep keep you in the house. Maybe we can lower your payment. There’s obviously a lot of room for negotiation here. Obviously they don’t know how much George picked it up for so he has the cards on his favor. But if any, anything you’d say like what what what’s like the average situation one of these guys In, you know, like, what’s

30:03
it can be anyone from losing a job a divorce a death in the family?

30:07
Like how late are they behind? Like,

30:10
what’s the kind of the profile? Yeah, it’s oftentimes a year or more behind. So many of these are severely delinquent. They didn’t just fall behind a couple months ago, they’re severely delinquent. And most of these will be in those judicial foreclosure states where it takes a while to foreclose, which is why the lender is, is looking to sell them at a decent sized discount.

30:28
And do you have an indication like, I guess, like, how many of these people you can keep in their houses and how many just you’re just gonna have to unload?

30:36
Yeah, sure. Good question. My guess is we’ll probably end up historically, we’ve kept about a third of the families in their homes. You know, originally when we thought when we conceived this, we thought that everyone want to stay in their homes. That was, I think, maybe overly optimistic, maybe a third in reality, about a third of the people end up staying in their homes, maybe a third of us, take cash for de leeuw and there’s gonna be a third that nothing can this There’s no resolution except to, to proceed to a foreclosure. So that’s the that’s the offering. I’d certainly open to any. Are you asking questions or is there like a chat?

31:12
There’s a chat. If you guys want to type your questions in the chat, we can answer it there. There’s one in there. But I’ve got a few questions, please, that I had. So a lot of a lot of investors that invested in the first one and they kind of saw some personnel changes. They saw you leave for a little bit and come back like a shining night like Howard Schultz did at Starbucks, Steve Jobs. Can you kind of talk a little bit about like, kind of what what, what went down and sure the lessons learn?

31:44
Yeah, good. Good question. So we hired a replacement. I stepped back when we started the service or I had never started a mortgage servicer and I had a tendency and I and which I try to control But which is to micromanage a bit I’m very driven to, to make do to see everything done as well as possible. And it’s tough to sidestep back and say, Well, someone else can probably do this better. And so in 2017, I started interviewing for replacements for me, and that person I wanted somebody who had a lot of experience with in the servicing industry, and could come in and help set it up and set it up right. And I did find somebody they came from she came from a large local bank called one Trust Bank, and joined us and did and I stepped aside and she did a good job building out the foundation for a real, I said real company, but we’ve always been a real company, but a company that we can scale into a large National Mortgage servicer, which means that we need to have a top left, excuse me, top level managers and then you know, it Who can build a build and run it successfully a team. And so Dan came in and she did a good job at building out the infrastructure for the service or what I think was a little bit of a disconnect was the types of assets that we historically purchase, which are these severely distressed loans in low or moderate neighborhoods, which is oftentimes it’s tougher to drive create processes around them, it can be done, but there’s still a lot some customization that’s necessary in order to reach resolutions. And I think that was a little bit of a disconnect. So in July of last year, I came back in as the as the CEO, and you know, I, I kept some of the management team that she had kept most of the management team. We changed some of the other personnel and I’ve continued to build out the management team and have attracted. A lot of top people in the industry over the last six months have joined the team as We’d kind of map our vision. But it was there was a disconnect. And what, you know, the evidence of the disconnect was that the, you know, our returns had dropped from, you know, in late 2017, we were in, had earned over 40%, in, in 2017. And then in in 2018, you know that the returns have dropped to the single digits, and that that was probably the result of a couple things. And part of it is the market, as I’ve shared, the market has gotten more difficult to buy these big discounts. Also. I’m very uncomfortable taking modest risks. And I even say, more than modest risks on these loans. And I think it needs somebody to be comfortable making decisions with a portion of the information rather than all the information. And so when you wait for all the information to be in front of you, and you say, Hey, I’m ready to this trade, it’s a good trade. I’ve verified that. By the time you do do all that research, lots of times the opportunity is great. So you need to make decisions in my experience to succeed and, and reach and achieve above market returns, you need to make decisions with most of the information available. So I’ll give you an example a couple months ago, it’s another service or called and said, Hey, we have this opportunity. But you got to close in five days. And here’s the information. And it was clearly a great deal. But most other funds, or investors in these will not be ready to close in five days, because it’s just not it’s just too fast to move. They’re not able to get all the reports and check all the boxes that they would normally do. And so I think prior management would have had a challenge getting that deal done. Now, that deal clearly made a lot of sense. We did it and in HP servicing so will can. So we look for those opportunities, especially because today’s market is it’s difficult to find these types of deals. So again, we’re not competitive bidding. We’re a bit we’re doing relationship trades, and we’re focused on building out the servicer.

35:54
I mean, maybe talk a little bit more about that relationship thing because we we’ve purchased a couple To three buildings from the same seller, it’s nice to know when you buy from the same seller. You know, you kind of know what level of skeletons are in the closet. There’s always skeletons, but maybe from like, the note perspective, like things that you don’t really need to do full due diligence, because maybe you have that relationship with the seller.

36:18
Absolutely. I agree. It’s the same thing in notes, you know, somebody calls and you’ve done business with them before. They’re an established company that you have a relationship with, you know, they’re going to tell you, they’re going to share what they know about the assets good and bad. And you know, we’ve had a bank call us this is a few years ago, they call and said, Hey, we had a couple times this happened where they’d sell call it 100 loans and to some bigger fund and at the end of the trade, that fund says, hey, these 10 loans, we don’t want them and we’re going to kick them out of the trade. So they’re kicked out and then somebody will call us and say, Hey, you got to close. You got to, you can buy these great price and BDR clothes in three days, two days and and doing that and being embel will be a that’s where you can get the best deals. Absolutely. And so and then, but the only way you can do that comfortably, like you said, is to have a relationship. So there’s somebody who you have relationship with, whether it’s company or person and you trust them, and they bring you something and you can take it at face value, and then do some modest due diligence to be comfortable with it, then you can go ahead and pull the trigger. And, and, and for the seller, I mean, I’ve been on both sides of this when you need to sell or you have a problem. And I’ll give an example. We’ll have a home in New York, for instance, and the code enforcement says, Hey, we need to get this home fixed up right away. And you know, we get a bid from some contractor which is $40,000, to do the fix up, and we’re saying, you know, we we own the mortgage, we don’t want to put 40,000 into the fix up. But if we can sell that loan to a local note buyer who can buy the loan, under contract to the city and say I’m going to take care of this. They probably can do it for half the price that we can. We’re in Chicago. They’re in New York. And so you see the those situations that they can close fast and they can meet with the city face to face, they have a big advantage over us and also to them that you know, they’ll buy from us we can do those things very rapidly.

38:13
Couple other questions that came up.

38:16
Um, you know, maybe after the last year, everybody was asking in my facebook group like, Hey, man, when is he gonna reopen? And I’m like, well, there’s just nothing that they can make a prop that their margin a profit on. That’s why they’re not buying anything because the economy is going well. Maybe Can you talk a little bit about like, you know, when the nimble recession happens if it happens ever. How does your guys strategy work in a war of a recession type environment?

38:46
Sure. So our strategy would,

38:50
would work very well. We work actually better. we’re at our best I think in a downturn, where things are going wrong and banks and other lenders Are unloading assets and there’s more sellers than there are buyers. And we’ve been in that market when we first started buying, it was like that. But over the last few years, it’s changed and it’s gone. So there’s more buyers, and there are sellers, and that results in higher pricing. So we stopped raising money last May. And the reason we’ve had is because we were being very successful raising money, but we weren’t deploying it fast enough. And here’s you know, that that’s a big drag has been a drag on our last two years of returns is when you have money sitting in the bank, or an escrow and not deployed earning money, then that’s a problem. And so that has drag returns right now I’m comfortable running with a very low cash amount. I mean, right now we have probably several hundred thousand in the bank, but you know, I’m okay as it goes down, whereas others may want Hey, we want a minimum of a million or whatnot. But it does, there’s always money coming in and going, you know, coming coming in from different dispositions and ideas. going out to two purchases, and I’ve lined up a few purchases of luxury months I think will be helpful to to to us, we have to make sure the pricing on the other two works like we hope, but there are you know, having money in the bank. So when when I first came back in in July, I think there was about $8 million that was sitting there and deployed. And you know, we’re having to pay investors returns on that. So that that was not an ideal situation. Yeah, they get their percent return regardless, right. Yeah, exactly. So that’s costly to our fund. And we’ve had you know, right now that’s remedied and you know, that should not recur.

40:38
what’s what’s your what is like the fan that you’d like to stay between like a percentage wise of cash reserves, or is this like a magic number you try to stay around?

40:49
There’s no magic number. I try to keep it very low, though. I mean, in the hundreds of thousands, I prefer to go down to 50,000 or something like that, because I know there’s always money coming in, you know, Centenario or some payments or something like that. But you know, I guess there’s something to be said for keeping a little bit more for when those you get those emergency opportunities. But you know, there’s no magic number, but I would say today it fluctuates between a couple hundred thousand and several hundred thousand in terms of money on the sidelines and that’s a, we just try to deploy it deploy promptly.

41:20
And then somebody type that question into the q&a box here and if you can see it.

41:27
So after looking at recent filings and audited financials, I noticed a large loss in the age proof servicing fund due to personnel costs and other expenses. How our dividends being covered during that that time.

41:41
Sure, so maybe,

41:42
maybe you can also like talk about like how these guys can go pull up the audited financials themselves too.

41:48
Sure. So we don’t have our audit for 2009 teen done yet. But we do have it is posted for 2018 and it’s both on our site on HP servicing. It’s also on sec on the Edgar system. And plus we do a financials that are unaudited through June of 2019 that are also filed on with the SEC. On the end, I believe they’re on our side as well. The audit for 2019 is in motion should be done sometime next month. April. Also, the next question investor will have is one of my k ones coming out. And we’re trying to get all those out by next week. So that, but the question about personnel costs is that we, I mean, this is front loaded. This is a startup we have attracted a lot of talent and that talent cost money. And that’s really what I think is going to drive us as a business going forward, the servicer, the costs, we’re still generating hundreds of thousands of dollars a month in our hundreds, thousands of dollars in servicing fees. So there’s a lot of servicing fees being that were generated last year, and the and that money is used in part to paper Personnel cost but there’s personnel costs those other fixed costs, our office, our technology, all those are at a certain level today, and we have a few thousand loans. Now once we get to 5000 or 10,000 loans, then those costs should will probably increase but modestly whereas the income should increase significantly. And that’s almost like any business. So that is right now that question and it’s a good question, but that’s because we’re paying a full team a full management team and other other support staff. Even though we don’t we’re not at the level where we need to be in terms of in terms of generating the the gross servicing fees that we expect to generate

43:37
later this year. And this is what sponsor keep is called guys this is when an operator it gets more and more institutional and more reliable. But you know the the margins go down and you know, like it this is not 2015 anymore, Georgia’s not giving 12% a year. Everybody thought that was a little crazy, but it’s a to do in the Yeah.

43:59
It’s a transition. So we had a, I mean, when in the different market, it was easy to pay 12% now we’re paying 10%, I think, you know, we’re, we’re envisioning the next Fund, which will probably be later this year, which would probably be something significantly lower, I think it’d probably be in the six, six or 7% range. And that’s just two factors there as we’re maturing as a company. And it also is the, you know, the environment today, it’s tough to deploy and enter in the double digit returns like we used to, as easily and also it’s also just the market I mean, the the rates keep dropping, and you know, it’s should be competitive, we think to offer six or 7% on our on our next offering, but right now, the current offerings 10% that’s going to gonna stay and we’ll continue to pay. So if you guys are,

44:48
you know, back in the day A few years ago, when your guys are paying 12% how much you guys are making, what about 440 percent return on investment

44:56
we did and you can check back on our prior audited financials and two things 16 audit in 2015 A plus we earned over 39%. In 2017, we earned over 40%. So those were just extraordinary returns. Great years. You know, then, as you can see, we we grew and we institutionalized and the returns dropped. And there’s many reasons for that. And we, right now my target is to get get us back into the high teens or maybe low 20s. I don’t think and as long as current market conditions continue, that we are going to be able to get back into the 30s and 40s on any kind of scale in the in the foreseeable future until there’s another downturn and then, you know, becomes plausible.

45:38
I think HP is a great way to kind of dip your toe into more of an institutional fun getting there. And monthly payments are great for if you have a reluctant spouse, they get that you get that instant feedback in terms of liquidity, as George said, you can sort of take the money in and out as as they Allow, but I would say like this is not a bank account. You can’t. This is a note fun that they need to. They need their money to working in sort of illiquid assets.

46:13
And you guys try your best to liquidate people, but I’ll say it and maybe you can say it nicer. No.

46:20
Absolutely right. It’s absolutely right. We try to redeem, you know, some makes it I think we’re current, our redemptions as of, you know, probably through last week, or redeemed. We’re probably taking anywhere from two to four weeks on average to process redemptions. So we do our best effort to do within 30 days. But like you said, these are illiquid assets. You know, we close the month. There’s a lot of sales or closings on the last day of the month. You know, I think we distribute we, we did a lot of process a lot of redemptions the early part of this week. So that’s what there’s a timing fluctuation, what we’re not going to do is to sell assets just to meet redemptions. But, again, we’ve done that We’ve been offering the redemptions since we’ve been doing Regulation A plus. And, you know, I think we’ve done a pretty good job about keeping them doing them as timely as possible. And when someone calls in and says, Hey, I got it, I got a closing next week, I gotta get this money back. You know, we’ve always done our best to accommodate that.

47:18
Yeah, I mean, I think in terms of like liquidity, being able to take your money if you run to an emergency what you guys invest in with distress notes with the park, huge margins and then the rate of return? I don’t think you guys you guys can be beaten at this point. But this sort of the goal of this point, your part of your portfolio?

47:41
Um,

47:42
yeah, especially with where the redemption, I mean, you touched on it that makes it very attractive to people and I know it started because because an investor said hey, can you know I just sold a big apartment building I don’t have another place to put the money can I give it to you, but I need to know if I give it to you then. or invest with you, then if I find another deal, I can get it back. And that was the genesis of, of offering this, this 30 day redemption request best efforts. And but we’ve done that, and I do see you touched on it, a few people will go in and out in and out, you know, they’re, they’re in for three months they’re out. And even if they take the reduce, return, you know, 8% on the current fund, they’re still thinking, well, that’s much better I get to do with the bank. So let me just do it. So that that’s been a

48:29
Yeah, their best alternative is what like three or 4% in a higher reward checking account, like they don’t care.

48:36
Exactly.

48:38
Yeah, I think you should make that fee higher on the next one. But,

48:44
yeah, I’m just like, close out here, George. I mean, like, kind of the story of how you came to, even before you did the non performing notes, maybe talk a little bit about that. And then you know, people want to check out the book and learn more about your story. Yeah. Why is it that you are kind of helping people actually stay in their homes and resettle their debts?

49:04
Sure. So good question. I appreciate you bringing it up. And actually, lane has there’s a great, simple passive cash flow episode or I’ve been told it’s great. I’ve listened to it myself. It’s tough to critique myself. But the there was one that we did a few years ago when I first met you lane, which is I don’t know what episode number was, but it was a good episode. And I know what questions you asked, but it became a little bit emotional. So this all started. HP was started when in 2008. But several years before that I was a low income housing developer basic. I buy the most challenge properties in the country and I tried to turn them around, and generally I had success. There was one property, which after I’d grown this to a nationwide portfolio of about 4000 units. I bought one property of 1100 units called with the meadows in Columbus, Ohio, and it got hit by an ice storm which triggered an extraordinary sequence of events in which I lost everything and ended up 20 $6 million in debt. And that was all happened. The storm happened in 2004. By 2006 was on five and six was when I was having my challenges. So 2008 was when I started rebuilding and that’s when I started HP and I saw the opportunity in millions of families that were suffering their own with the metal situation in that they were underwater on their homes, they were losing their jobs couldn’t afford their payments. And you know, I learned from my experience that by offering a solution that’s not like send me your tax returns. Let me see what kind of deal we can get for you. We actually send letters to homeowners. We still do it today. Where we say we own your mortgage you owe 100,000, but we’ll take a discount at settlement of 45,000 or your payment is 800. We will drop it to 500 you owe 20,000. And delinquent payments will take 2000 and if you make these concrete offers to people in distress, it’s tangible. They can say hey, I can do that and they they respond Instead of, you know, send your tax turns and paycheck stubs and all that stuff they get in a dance, which many times they don’t think that they’ll get out of. So that that’s that informed us I think is what gives us has continued to give us a big advantage even today as a servicer. We employ many of those tactics for not only the loans that we own, but also loans that are owned by third parties. So the book is burn zones. So I wrote a book to explain everything to investors, about potential investors and everybody else about you know what happened, and it’s called burn zones. It’s on Amazon, actually, as a simple passive cash flow listener. If you send Lane your mailing address, then he’ll get that to us and we’ll send you a free paperback copy of a burn zones but check it out on Amazon, or, or request it from Lane and we’ll get your copy.

51:50
If you guys want to go back in the archives podcast number 3234. Listen to Joe George talk about his struggle from going $28 million in The whole and the fight to get back to even listen to a grown man almost cry. Oh no it wasn’t that

52:09
wasn’t that bad?

52:10
I don’t know what you asked but it turned out to be I mean it was a good It touched on a few things that were was maybe I made me feel uncomfortable I don’t like emotion.

52:18
Oh

52:21
yeah good thing we didn’t do video back then.

52:23
Yeah agreed

52:26
yeah alright guys well um yeah if you guys want that book she meant email with your mailing address and if you got any questions first check out the info page and we’ve probably done like three or four of these webinars like this at simple passive cash flow calm slash HP but if you guys want to invest go to www.hp servicing.com and anything else we missed George

52:51
No, I think that’s it that was uh, any questions people have, you know, reach out to us or, you know, email info at HP servicing comm or give us a call Call at 866 Hp team and we’re more than happy to answer any questions you have. But we appreciate everybody’s support on an ongoing basis and new investors you know, we hope that you on consider investing with us.

53:15
All right, thanks so much. See ya. Bye

53:23
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