Proper Note Origination | Real Estate Notes Show

Episode: Proper Note Origination RMLO & Underwritting - FULL Dave's Goals and Plans: - Buying seller finance notes after originating them in the past - coming full circle - Bidding on 10-12% paper instead of 5-6% interest rates for better returns and lower discounts - Planning to have checkbook ready at DME to cash out note originators - Abandoned seller finance model in Columbus Ohio around 2013 when couldn't find compliant RMLO services Nathan's Goals and Plans: - Running multi-faceted note investing and origination market conference at DME - Connecting note originators with note buyers at DME for mutual business opportunities - Interest rates are huge factors in bidding decisions that many people don't realize Key Recommendations: - Originators must use licensed RMLO and proper underwriting to ensure borrower ability to repay and avoid lawsuits - Write notes properly with attractive terms to make them more saleable to note buyers - Follow all lender compliance laws and Dodd-Frank regulations even with different underwriting guidelines - Collateral file must contain RMALO logo and underwriting documentation for compliance - Register for DME before today (last day) to save $200 on ticket and get hotel block rate Topics Discussed: - Difference between ARMALO and underwriter roles - Dodd-Frank compliance and its role protecting borrowers - How to structure seller finance notes for marketability - Interest rates as primary bid factor for note investors - Legal risks of improperly originated notes (lawsuits, fines, levies) - RMLO requirements for seller financed and owner financed deals Guest Insights: - Sarah Montes learned owner finance from mentors with 20+ years experience and developed compliant RMLO package at Texas Pride Lending - Dodd-Frank came from 2008 financial crisis problems and was designed to protect borrowers through proper underwriting - Texas Pride Lending started in 2013 specifically to help real estate investors create compliant owner finance notes - Creative financing (wraps, sub-twos) requires same compliance treatment as traditional seller financing - RMLOs became required by law, not optional, making licensed originators essential so really just the the difference between an armalo and the underwriter right so the armalo is actually originating that loan for you on your behalf as a lender the underwriter is just making sure that the buyer has the ability to repay [Music] [Applause] [Music] hey everyone Dave putz here from jkp Holdings alongside me Mr Nathan Turner we pause for a little delay everyone a little technical stuff going on here I'm glad we can connect for a few minutes before we get started with all the stuff we wanted to do some quick housekeeping um as you probably may know I'm Dave put some jkb Holdings Nathan Turner from Earnest investing we have a big event coming up Nathan it's a big deal man just a little bit all right so for those who don't know we've been in note invest since 2010 buying Traditional Bank Loan stuff some little bit of cell refinance stuff but we're seeing a big shift and Sarah financing is becoming the thing and I it's funny for me I actually started doing seller financing so now for me it's kind of coming back full circle where now I'm buying seller finance notes which is what I was trying to do in the beginning I was creating these notes and trying to sell them now I'm the on the other side and I'm I'm trying to buy the ones that people are creating which is pretty cool yeah so it's it's really cool to to have this kind of go first full circle and for those who are saying why would you want to do that what is the advantage of it for us we can't buy three percent paper and for those who've been out there we I put a poll we put a poll out yesterday about what do you bid on base of upb or whatnot and a lot of people didn't realize interest is a huge factor in what we bid on yeah um and we'll be talking about the vme right how to bid and what we're finding out is people don't realize it but what's our finance the interest rate is very attractive yeah yeah the higher the higher you can set that the easier it is for you to sell it the easier it is for me to buy it we can do a lot of business but you gotta you got to write it properly yes and you can write it in a way that makes it more attractive for sale later yeah and when we're buying these papers and people say why do you care well when we go to foreclose we don't want a prominent borrower we don't want you to have a problem with the borrower we want to cash people out for those who are note buyers understand the fact that you're buying 10 11 12 paper times and not five and six percent interest so when you're gonna buy you're gonna get a much better easier return and your actual discount is a lot less which is really attractive yeah so all these things and more we're going to be talking about all this stuff today is the last day people to save money on your DME ticket I know a lot of people who bought already and that's fantastic good I'm glad if you want to pay more I'm actually fine with that I've just I'm trying to help you out help me help you save some money today is the last day to get 200 off on your ticket and it's also the last day to save money on that hotel block so make sure you get that in today if you bought your ticket but not your hotel yet get the hotel because today's the last day for that uh that cheaper rate and if you're curious what it's about DME has traditionally been a note investing conference for note investors to learn and game it's not going to be that way this year Nathan's running an awesome multi-faceted notes investing new origination Market conference where people from both sides of the table per se is going to be in attendance and be talking to each other so those who are originating notes and want to get cashed out guess what we're going to be right there with you with checkbook grade rate a deal for you and those are note buyers you'll be sitting next to people out there who have loans who want to sell them and want to get cashed out and willing to sell at a really awesome discount yeah we can here's the cool thing I was just having I had a conversation with the guy yesterday where he says okay so if I'm going to create a note if I create it with these terms then you would buy that and I said absolutely all day long yes and he's like oh wow you know stars in his eyes dollar signs yes yes yes yes we can do a ton of business together and so we're here to help each other I can't wait to meet a whole bunch of these seller finance people that are creating notes and for those who know buyers are saying we had a couple reach out saying Dave your webinar this week is really not for us well we're gonna tell you it's holy is for you right if you are going to buy a seller finance note it's not the traditional um due diligence process right there's another step to it because if you're buying paper that's not originated correctly you're in deep water why is that the borrower can sue you we're gonna go through the legal processes next our next webinar on the 26th of an attorney right but when you're creating that paper if it's not originated correctly for owner finance property you can get sued I'm sure none of us want to get sued right and there's fines there's levees and all that stuff we'll talk illegally next time we're today talking about what that process is to originate correctly for Sono buyers you got to make sure that collateral file has the armalo logo and as well as the underwriting there to prove the fact that borrower has the right has the ability to repay and we're going to cover a lot of that today but a DME is all going to be having that same conversation in live in person in Nashville yeah so get your tickets last day and last day go and get them Diversified mortgageexpo.com so we're gonna bring in a special guest now so we have a special guest who's gonna be coming on today uh before we bring Sauron we understand the fact that arm below is very confusing for bulk milk buyers and Originators and a lot of people out there are originating in underwriting without both sides they're doing what we call a checkbook underwriting meaning you have a checkbook you're underwritten and you get the loan that doesn't work right so when we work with people like this we want to make sure that we help them we're not experts right we're going to help you along that process so we can buy them we have an alternative motive here right we want to cast you out refi and let you go buy more enriching more loans yeah right so when we come to DME be present be ready and if you have all your tickets already make sure uh check out the DME uh if you need a link whatever put in the comments um and whatnot so we already got some comments coming in so we're gonna bring on Sarah let me uh flip the screen so awesome so we have Sarah on today she is an armolo expert at Texas Sarah could you explain first how'd you get in the space how did you learn about all this stuff in the just the background of Who You Are sure um Sarah Montes Texas Pride lending um so yes we I started with um with the gurus of the gurus of owner finance um I started um working with two gentlemen that have been doing it for like 20 years and all I did was just sit there in their office and listen listen listen listen and just soaked up I just soaked all the information that I could especially when someone's been in the business for so long you um use here and you see you know the historical side of owner finance and um whenever Dodd-Frank rules and regulations came about everybody started freaking out oh my gosh you know we can't do seller finance anymore and you know you learn that the history of all of real estate investing is that you always try to figure out how you're going to continue going uh abiding by the rules and regulations all these new compliance laws come out all the time it's just keeping up with them and and making them a part of your business so that's what we did that's why they brought me in because I was a licensed loan officer and they said hey you know would you be interested in in originating owner finance nuts for us because now we have to do it now it's required so uh so I I came in learned the business um as far as the the owner's uh Finance side so um we pretty much developed the r Melo you know package or the rmlo you know what's gonna what's gonna satisfy this new law um so um I don't know if anybody's familiar with Grant Camp long time ago he was uh you know just very active on social media doing a lot of webinars teaching people how to do this um very young very young guy he um he he also was one of my mentors but I mean he had 60 homes within you know one year um and it was all you know sub twos and creative financing and wraps and so it's not just owner finance right it's all the other stuff that makes it so interesting is the creative financing behind it all um so that intrigued me a lot so that's why I was really focused and really determined to learn all of it every bit and piece um so that's how Texas Pride got created uh was solely for Real Estate Investors that were creating owner finance notes and this was you know good 15 years ago 10 years ago so we um what year did you get started uh we started back in 2013.

so that's when we started yeah and I forgot to add in the housekeeping yes this is recorded this will be on YouTube our podcast um our website we can actually have it so I'm on jkp Holdings slash webinars you'll see recording on there as well all this will be recorded and available for the podcast or webinar so yes so let's go back interesting just one real quick so I had learned about Dodd-Frank I was doing all these seller finance deals and putting you know in Columbus Ohio was a bunch of land contracts and uh and I'd learned about this Dodd-Frank thing and I'd heard about it and I knew it was going to be implemented in 2013.

so we started looking around me and my old partner we started looking around for an rmlo we knew that's what we needed we knew that that was what was required we could not find anybody nobody it was like just they just did not exist knowing that that was the rule and knowing that we couldn't find anybody we had to we had to shut it down there was no way that we could continue doing it properly and legally so we we abandoned that model which was really too bad it was a great model but we knew that we couldn't do it right so I'm so glad it took a couple years for me to find people like you that you had to underwrite and how to how to write them properly so that they're done legally so we have to understand that Dodd-Frank law came out of debacle right it literally came out of the problems that were happening back in 05 or 60708 and the I understand the fact that borrowers were really getting in in bad shape because of poor underwriting and whatnot so new rules came out for that reason to protect the borrowers so this entire world is around protecting the borrowers and doing it legitimately Now understand if you are going to try bypassing this stuff and get away with it we feel that they're going to actually make the rules even stricter if it continues to be violated because they want to protect all the people right so those are listening on LinkedIn and Facebook understand that yes could you get away with it I'm sure you could we're not looking to get away with anything we want to be right to the borrowers and we want to do good business right and if you're doing a lot of these notes and creating them do legitimately right now you may lose some borrowers because they don't qualify but they shouldn't qualify them right we're not just screwing people over here so we'll make sure we're clear that this law came out to protect borrowers to do it right absolutely yes and if you're going to act as a lender then you have to follow all the all the laws that lender that typical lenders do as well yeah you know granted the underwriting guidelines are going to be way different but but you still have to follow the the general rules and general laws yeah so when we talk about this stuff you know there's a lot to do with this idea of armalo with underwriting and whatnot uh and then Sarah put a great PowerPoint together with us um inside of our our our our links there's actually a link if you want to get Sarah's information click on the the pin post and that will give you a webinar link just fill out the form and you'll get an automatic email with Sarah's information so to get that that'd be great with that said um when we work on stuff like this we hear a lot about this rmlo and it's underwriting and Loan originations and Loan these are really words that for note buyers we never really dealt with or heard about and for well we're flying out me and Nathan a lot of Originators haven't heard about it either so can you before we get the PowerPoint can you kind of break down what an armalo is and what an underwriter is I know we got some bunch of questions initially we're gonna ask and then we'll open up for Q a but what is an armlo what is an underarm what's the difference between the two sure so the the arm low is originating below um so we are we are the loan officer that's going to originate for you I guess more importantly the arm lows the mortgage company or the mortgage broker that is going to originate that that loan for you uh to keep you compliant because Dodd-Frank does have a licensing requirement so as an investor real estate investor you're not licensed to do loans that's why you hire your rmlo slash loan broker to originate that loan on your behalf to satisfy the licensing requirement so that's why you use the armalo piece of it an underwriter is just looking at someone's income and their debt their debt to income ratios and figuring out whether or not that they have the ability to repay so the other thing with Dodd-Frank one of the rules for dodd-franka's ability to repay so you do need the underwriter to uh review to process the loan and say yes this person does have the ability to repay this loan um so that's the second part of it um with us obviously we do we do all everything we do the armalo side we do the underwriting side we provide you with a full complete underwriting package um one of the other rules on Dodd-Frank is to also disclose the loan terms to the buyer um so that is very important as well so the buyer knows what what kind of loan they're getting themselves into right it's all in black and white and it's in writing and so that's another piece of of the the armalo process um so you know everybody just hears the word rmlo they really don't know what it is and it does stand for Real Estate mortgage loan originator um which is across the board for anybody that's originating loans you know whether it's a bank or a mortgage company or or anything so um for us and specific to what we're talking about is we're originating those private notes owner finance notes um so to keep you compliant since you're not in the business you're not licensed this is why we come in is to help out with to just make sure that you're creating qualified mortgages and the reason to go and I mean the reason to do a qualified mortgage right is to get more Banks to get more uh more dollars for your uh for your notes uh if you go to foreclosure that you're not going to have a problem and your borrower's not gonna fight it right let me argue that that that balloon was created incorrectly or illegally yeah and we won't get the legal side of it just the fact that understanding you can be sued by a borrower if you're not licensing you're creating these things or if you don't want to write correctly foreign yes so there's going to be several reasons um so if you don't do if you say no you know what I'm just or my you know there's a lot of attorneys a lot of tile companies out there that are saying uh you don't you know you can go ahead and continue doing solar Finance the way you wish uh because it's uh you know they don't understand that um uh the that what what's happening with Dodd-Frank is that they're protecting the consumer so if the the buyer is purchasing a home as their Homestead that's where it becomes you know that it falls under the Dodd-Frank rules and regulations so a lot of people don't know that um and so if they're going to buy that that property as their Homestead they're a protective class and um so that's why you have to go through all the different um qualifications for a qualified mortgage is uh number one you know points and fees you can't charge accepted fees you get a Max of three percent uh your loan terms um can't have a negative advertisation they got to be under 30 years or less um you know no balloons you know we'll talk more about the lens of you guys when we get to that point yeah but you can't do risky features that's the most important thing you don't want your your you want to create a qualified mortgage a mortgage that someone is going to actually be able to pay um that's not going to default um you don't want to put risky features in that note um to set them up for failure right I understand we're talking about owner occupied homes investor homes don't apply to here commercial and whatnot these are strictly for bars for occupying the home you're creating the note for so if you're doing reps right and you create a note for a bar with a living a home you must be underwriting you must be using an armalo if you can do or three or less you can do your own we encourage you to underwrite still with the licensed person who can do the underwriting part but you need to understand that if you're doing this in a business you should be doing this so we have some quick questions I know Nathan I sent over to you as well um yeah exactly where are you currently licensed to do armlo work um so right now it's Texas and Arkansas uh we're definitely going to go into other states Florida Oklahoma and Colorado so we have we already have you know several that we're going to uh put on our list to get started with that um I know you know we've obviously we've been here for a long time we've done this for over 10 years um and we get the calls all the time you know I wish you were licensed over here I wish you were that and we just we just got so busy in Texas that it was impossible for us to take on other states uh but now we are to that growth level where we can say okay now it's time and now we can go expand into different states and start helping owner finance investors um in different states so definitely reach out to us and let us know what state you want us to get licensed in and we'll get that process started that's awesome but in the meantime though what we can do we also offer an out-of-state pack underwriting package so we can still underwrite that file for you um so that if you're going to create this in this note um and you want to make sure that your buyer your buyers are meeting at least you know the the the Five Points of the qualified mortgage um we can definitely do that for you we can still provide you with a complete underwriting package um for you to have in your you know in your files and if you do have to go to foreclosure or anything like that at least you did that part right and that's a little bit of a protection there for you I've got one other question just on on terms and licenses and and uh titles I guess another one that we've heard is processor is that the same as an underwriter or is that something different than an underwriter yeah so um a processor is just really just an admin putting together the information um an underwriter needs to be licensed got it awesome so yeah so the difference is armalo Underwriters have to be licensed uh a loan processor should be by law should be uh licensed as well if they're they're touching you know a mortgage loan um but yeah so yeah so you can have a processor let's just say you're a real estate investor and you want to have a processor you want to hire your own person to do it you can but you have to have a mortgage company or you have to be licensed your company has to be licensed and then you can hire a processor an underwriter to work under you but the first step is to be licensed okay yeah we all hear all these different terms and I'm like okay is that what this does you know it's very confusing and very overwhelming for even us note buyers those who are creating these notes who are following these courses of doing substitutes and wraps I'm sure it's even more confusing because I just want to do real estate right yeah yeah and then so you know that's the other thing that's another thing that I always tell you know when the when uh we actually got a recent rap law um passed here in Texas that that just added more um you know obstacles to do wraps um and it's just the Texas law here but um so when that happened everybody said you know what this is it I'm getting licensed okay so they so what happens is they start researching they're like wait a minute it doesn't matter if I get license I still can't do this I mean this is a lot of stuff to know and I don't know all the laws and regulations and you know the 900 pages of Dodd-Frank so they some of them still got licensed but they still use Texas Pride to underride and process and do the do the the you know the back end uh office work of of the origination let's dive into I know that there's some comments going through about independent loan processes required to be licensed in most States from Sohail um and then it's in some uh select States the independent Underwriters required to be licensed I'm presuming that's similar kind of thing thank you so hell for chumming in there um that's awesome um so I'm glad those are joining in here feel free to ask questions um uh Nathan did you get a chance to review some of the questions we got yeah I'm wondering if we do we do the questions or should we get in you'll see now I got a PDF from you I'm presuming we're gonna run through the PDF because that they is that the best way to decide or you have this in PowerPoint as well okay oh yeah I mean um yeah the PowerPoint the PowerPoint but uh just to the the slides of time all right thank you all right so right here on this first slide I said safer because the one of the the acts was called The Safe Act yeah so just if anybody's wondering why so it relates to the Safe Act got it got it so what we're talking about here is you know seller finance stuff and the idea of what it qualified to be a qualified mortgage and that's really protecting the borrower or stuff so I'm glad we can discuss that that that feature of it um to make sure people understand what that means and go from there and again there's no buyers this is a huge plus huge huge huge uh maybe even a deal breaker so yes yes so if you're looking to get out of your loan for whatever reason I highly encourage you to kind of stay compliant yeah as you can see a lot of information she's been doing it for a long time um Texas prize been in Texas for a long time doing all this stuff and most loans that are being originated are in Texas so Texas is the reason we're really focused on Texas rmlos at this time I know Ellis asked about armalo in California um I have been in touch with some people who can do all metals in other states so feel free to come out and talk about this so we went over a little bit about this Saturday I'll let you kind of chime in here can you explain a little bit more about this process sure yes um so um a lot of you know the big question is why use an armalo um so it's been a loss since 2013.

so again you know it's not a lot that just happened yesterday everybody needs to get educated if you're going to be doing this as a business you need to stay compliant as a lender um so that's very important just to do good business um you're going to be you know in the real estate game you're going to start selling notes you want to get top dollar for those notes so I mean if you're not going to do it right why do it at all right so um that's number one um and then so secondly the Foreclosure protection right so if you um and we're going to call them the end buyer so the end buyer is purchasing a house and you know within four to six months they stop paying you need to to go to foreclosure court that um that uh judge is going to say well did you originate this correctly um are you licensed did you make sure they have the ability to repay back this loan they're going to ask you all these questions and if you don't use an armalo you're not going to have the proof that you did all the things that you were supposed to um so if that were to happen um you know so what what an armala does is protect you from that foreclosure um that foreclosure Court when you get in there you can say here you go I have an underwriting package I have this I have that I have all my ducks in a row I'm super organized I am doing business correctly and then they'll Grant you the Foreclosure without any issues awesome um so I don't know if we want to go into the the ramifications on uh on that but maybe here in a minute yeah those who are coming on the 26 we'll be doing a follow-up on the legal part of it like what happens if you don't do these things so let's focus on what the proper origination is but we feel free to kind of Divi if you feel needed to switch over so let me scroll down yes let's go to why the the whole Dodd-Frank protection act yeah got started um you know the too big to fail situation in 2008 the financial crisis um they were giving loans to anybody that had a heartbeat right if anybody who had a poll third giving lunch to so that you know it it crashed or or you know our financial system and um and so they don't want that to happen again and so how do they fix that is just to regulate any lender it doesn't matter if you're a bank or a broker or you know a seller finance person that's loaning money um uh I do and just to add to that um I don't only just work with seller finance investors I also work with a lot of people that are offering private financing um so a lot of investors are creating um kind of like a Loan Fund or a hedge fund and they are just loaning money to anybody that wants to go buy a house you know and so um you're acting as a bank so if you're doing that you know this is this is where you need to uh make sure that you're following these rules but yes they ask about is this affect any kind of uh land notes as well is land play role at all in this okay so that's a great question I get that all the time um so vacant land or vacant Lots um if that person is going to utilize that that vacant lot um as their Homestead residents within the first five years of that note then yes you have to follow these rules and regulations because okay so this is what happens you sell a lot you like oh you know I can sell it however I don't have to go through an arm low um and then in two years they build a house or they move a permanent mobile home there um and now it's their Homestead and now and and then you have to foreclose well guess what wait a minute this is their Homestead why didn't you originate it correctly so just to protect you again you know number one and number two so if you do create a qualified mortgage on that vacant lot um a lot of people are selling those so those notes right so they're they're splitting up they're they'll go by 100 acres split it all up and then sell those notes and and do it all over again yeah yeah good so I'm going to add that when you're selling notes and you know when you go to a note buyer what do you say oh I have this piece of land over here and yeah what do you what do you give them what do you give them just a three you know three paper uh document with a promissory note um so with our package you can actually give them a hundred a stack of 100 you know 100 page uh package that makes you look organized legit and makes you look like somebody I want to do business with right your no buyer is going to be impressed and you're nobody's gonna say bring me more I want to do business with you uh but if you bring them a three-page promissory no they're like what is this yeah two weeks ago I got one I got I had two notes there were one page each and I'm like oh my gosh come on that's not gonna fly there's a lot of things that go into these notes we're talking about in a previous webinar the fact that you must include certain things in this note right the first when the date of the first payment the interest rate your your monthly payment should be separated with your p he and I with your monthly principal and interest payment separate from the escrow amount that has to be separated and you have to make sure inside the escrow that you're saying to the borrower it was subject to change you we've seen too many papers recently where they merged the Piti principal interest tax and insurance into one payment and they don't put anything about the fact that the escrow will change or adjust over years if interest goes up so then it gets stuck in a balloon we can talk more about that if you want to reach out what that means it's just dangerous juice you need to write that note clear-cut the start date comment what's the term what's the pni what's the escrow what's the full monthly payment what's expectations and everything interest rates everything in there to make sure the borrower is well aware of what's going on even an amortization schedule is is um is almost mandatory too so that the buyer really understands you know the imitation of the loan yeah yeah you gotta have your truth and lending stuff in there like it's a one page two page three page that it's I guarantee you don't have everything in there that you need to have yeah so it's not just the Dodd-Frank uh rules it's also the respite rules the truth and lending rules there's a lot of laws that you have to abide by and so you know definitely seek professional help third party to do that kind of stuff to lead you in the right direction make sure that you're writing good paper so Cindy's got a good question let's say um you say well I use my attorney to to drive everything up is that good enough does that qualify if I just if I have an attorney Drive everything up is that good well okay so your attorney's not going to have a loan system that's going to give a loan estimate with the APR so the the one of the rules is that you have to disclose the a the apor to your buyer uh the annual percentage uh you know rate on the on the so your attorney doesn't have a loan system that's going to spit that out for you they're not gonna they're not gonna have the qualified mortgage report that says hey you you actually create a qualified mortgage and here's the results um and the proof um and your attorney's not going to have uh I mean all I'm I'm thinking all he can do he can legally originate that loan for you yes they are they are legally able to do that but all you're you're still just going to get your promise to your note indeed a trust you're not going to get all the other um required uh loan disclosures that are acquired by law on any realistic transaction right um it's not just sell or Finance but when you're doing a real estate transaction you also have to include all the other um respa disclosures um so I'm not sure if your attorney has those that you know um it you know I've seen a lot of attorney um packages over the years and sometimes I'm you know I'm just like I can't believe that this closing package is you know seven pages um so just be aware be careful if you are going to have your attorney originate that loan for you on your behalf uh make sure that they're checking all the boxes and that your buyers getting all the disclosures that they're that they're supposed to be getting yeah just to make sure we're we're accurate just a2or stands for someone asked that question was Ator stand for it's the annual percentage offer rate so we'll get that well there's another slide on that um here in a minute so we um let's see if we want to go down to that um we went over this a little bit before any highlights you want to kind of cover on this before we go the next slide um yes so really just the the difference between an arm low and the underwriter right so the armalo is actually originating that loan for you on your behalf as a lender the underwriter is just making sure that the buyer has the ability to repay so I know that there's this big company out there that says call the underwriter um but all they're doing is just doing what you could probably do yourself and say okay these are your debt this this is the buyer's debts and this is their income and do the math right that's all pretty much what they're doing they're gonna just uh look at all the uh the proof of income that you're providing to them because they don't they don't go out and get that directly from the buyer um and they're just doing pretty much the math for you and calculating it for you I don't think that an underwriter suffice or call the underwriter whatever they provide is not sufficient for uh number one the licensing requirement and number two um you know something that you could probably just do on your own um if you're just really just trying to figure out whether they have the ability to repay or not so it's a big difference yeah so um I I sent the message Nathan so um just to kind of feed anything we're trying to feed everything in but we'll do our best to answer all the questions um but just understand that if you have additional questions feel free to shoot us an email or click the formats in the uh the box and we'll get through as much we can today um I know that one of the things we're focusing on here is the borrower right this is all about the borrower make sure they have the ability to repay make sure the rate's not too high make sure it's a legitimate loan and we're passing all the legal Dodd-Frank rulings and stuff like that so um and we have some really great people in the chat going back and forth uh I see Mark I see uh so how um I I see Nikon of course uh we're gonna get Mo as much customers as we possibly can um in the process of doing all this stuff um so cool okay yeah we can go to the next slide and try that absolutely all right so ATR before we get that what does ATR stand for again for those who may not know ability to repay the ability to repay again folks in the borrower cool thank you much okay so so Dodd-Frank does not set any kind of specific rule on the DTI because I know that's a huge question for everybody well what DTI are they supposed to be under um oh sorry and just FYI um the uh yeah apor correct so the if you made a mistake and you do this incorrectly we're going to get to that so bear with us we may be a little longer than an hour we we expected uh an hour and a half but we're gonna get to as much as we can so go ahead sorry go ahead it's okay so just to just to touch on the DTI um you verify consider the DCI that they're going to provide uh we do pull credit just and we don't look at credit uh scores all we're looking at is the liabilities um and so we take their proof of income we take their liabilities and then we that's how we come up with the DTI um so that's the debt to income ratios so um when we do that you know you get a percentage and so we just like to stay under 48 DTI again there's no set number it's it's going to be each investors you know whatever they choose to do and how to how to set their underwriting guidelines for themselves and for their buyers um but what I like to do is I just kind of go based off of what the um the guidelines are in in you know for FHA or for Freddie Mac you know I just try to follow those I think FHA went all the way up to 50 this past year um so I'm not too familiar with the conventional uh the conventional financing but I do like to stay up on um there if there's any changes on DTI thresholds um so that we can kind of mirror those those thresholds for you Okay so I'm going to scroll down here and um again just and so for the underwriting too it's just really just makes sense underwriting you know you need to make sure that you're looking at everything and we have a lot of people a lot of our end buyers our cash buyers or self-employed buyers um so a lot of the questions that I get you know what if they get paid cash um so you just really just have to do an analysis uh we'll we'll take six months of their bank statements and we'll average out six months of whatever they're depositing every month and come up with that monthly payment monthly income for them yeah okay for those you know idea about the DTI it's all about the borrower so the lower the better you are because then you just have a better quality note um in the eyes of the law so yeah so how absolutely um Kevin cuddell also asked the question is that I've made a comment which is really key the mlo is the only person allows Professor the consumer right they're they're negotiating the loan per se right they're talking to the consumer they're because if you do any kind of conversation with that borrower you're not licensed to have that conversation is that correct that is correct yes so that's why you hire the rmlo is to do those those negotiations with you or disclose those loan terms to the buyer and and you know just kind of speak on your behalf right of what your interest rate uh requirements are down payment requirements all of that yeah awesome great so qualify mortgage we have five points we're focused on yep so the qualified mortgage you know pretty much you're you can't go over your points and fees um so that's going to be loan origination fees uh not a lot of people charge to loan origination fees but some do uh so you know we just need to be careful to stay under the threshold of three percent or else you're not going to have a qualified mortgage um your loan terms must be 30 years or less so you can't do a 40 to 40 year uh advertised loan balloon payments um they don't want to see balloon payment terms uh what I suggest in lieu of balloon is uh to do an adjustable rate mortgage so do an arm um you do have to have it fixed for five years that's one of the rules but after five years if you do like a five-year arm then you can um aggressively um increase that interest rate so it it um it you know helps them kind of get encouraged to refinance or pay off the loan that's another Avenue instead of doing a balloon you can do an arm it's a good idea um and then the no negative amortization really is just the no you know that if you're going to try to do like an interest-only type Alone um you're putting that that buyer kind of in a bad position um at the end of the term you know you don't you don't want them to be upside down on their on their on their loan and so uh no risky features on on these loans that you're writing are these these notes that you're writing um and the apor apor I guess I'm sorry average Prime offer rate so um we also just let you know whenever we get your um your transaction and we're going to originate your transaction we check what the that week's apor is um what the primary is and we calculate that for you and we say Okay whether you're good or maybe you're just a little bit over that threshold um so we just make sure that you're under it in order for you to have a qualified mortgage so um that would be prime rank plus six and a half percent yeah so if today's prime rate is 7.25 then you're going to add the six and a half percent to that and that's your max interest rate that you can charge that that end buyer see an iOS State specific thing but that's a national that's a national qualification this is National right right right National so the state specific uh interest rate thresholds those are um when you're getting into like the the 20 you know interest rates uh when you're going way way above um the these thresholds here so it's not um I don't think that you can really compare the same thing because we um as professionals or you know Originators we're not going to let you get to that usury rate right okay interesting high cost so that being said the higher price versus the high cost this is where uh today if you go six and a half plus Prime you're you're going to be considered a higher priced uh mortgage if you say Sarah you know what I don't care that I'm over that I don't care that I have a qualified mortgage I still want to write this note I want to go as a non-qm okay we can still do that but now you're going over on to the high cost mortgage so if you go over that interest rate threshold a six and a half plus Prime then you're going to be considered a high cost mortgage and um you can still do it and you're still okay you're not breaking any laws there's only there's just a other small items that you need to do the buyer has to take like a home buyers class A first time home buyers class with a certificate and everything um you have to get two appraisals on the property um extra disclosures things like that so you can still do it you just have to have your buyer go through a little bit more of a um qualification process what if this is a land contract I know Texas doesn't do land contracts but from our understanding it doesn't matter what the type of instrument is for the the connection it's the fact that the note itself it doesn't mortgage land contracts cfds all come in the same bucket that if you're creating a note backed by some kind of security instrument this needs to be in place correct correct because it's all about the origination of that mortgage note yeah so if you can just think about that it's the origination piece of it what about uh what a what about a lease with an option to purchase sometime in the future is that the loophole so yeah I think every state has their own uh laws on that uh Texas has six months so you could only do a lease to own for six months after that you have to transfer the the deed so uh or you have to actually do the actual clothing with them um so um for people that are listening that are in Texas and don't know that that's that's a big one you need to make sure that you're doing lease to own that you're actually selling the property to them um month six okay very good interesting um so we already talked about the Foreclosure Court a little bit um so if you do have to foreclose on a property and you go to foreclosure court and you don't have uh an armalo involved or your package or your underwriting or ability to repay or anything that says that hey I did what I was supposed to do to originate this loan um then you're going to be required they're still going to uh they're still going to give you the Foreclosure but you're gonna have to pay back any interest that you've earned on that loan and any closing costs attorney cost court costs from the time of origination that's really stiff this is getting scary guys for those who are originating loans and watches and you didn't do any of this stuff this is your business this is your livelihood this is food on your table yeah it's just not worth it yeah yeah so um so yeah I just get another serious there with the season fines a defined season but you know what we'll do it deeper with our attorney we're gonna have Jeff Watson come on next uh our next webinar on 26 for those who are tuning in and that will be just before DME so we're gonna take a break to DME week because hopefully we'll see everyone there um and folks on the fines before we get there so those who are curious about it make sure you learn about join into 26 for that that session talk about it yeah I got your legal questions together for that one we'll we'll pepper Jeff with that yeah actually yeah absolutely for for note buyers um I get this all the time I get no virus calling me saying hey I got you know portfolio here it wasn't originated correctly what can we do so um the easy answers re originated so um the the way to do that is to do a loan modification on each one of them or you know to do a loan modification on that loan um the only thing that you're that you're required to do is give them a a better term so um I would suggest let's just say that note it's five years you know five years old um maybe you rewrite that loan as a 25-year uh mortgage note reduce the interest rate just to slight slice like this um and then you know there you go yeah so if you create a land contract or cfd you've got outside Texas of course and you are originate this incorrectly just go back to the bar and say listen we're going to flip this over to a mortgage right we'll we'll keep we'll create a note we'll create a mortgage and we'll get rid of land contract if you're in Texas you create this make a deal with the borrower and say listen we're gonna make a deal we we're gonna fix some stuff up things have changed a little bit and we're going to drop your half percent let's recreate this thing and get you in a better spot and that's how really to fix it it should be done you sign that and then you're good to go yeah and then we get buying it we're still buying it so yeah we're almost done we'll get to the some of that stupid questions as well yeah so the underwriting package just so you know it just includes a statement of compliance and it's just going to be you know really just the r are the loan officer saying hey we've we've reviewed we've verified we feel that this fire does have the ability to repay you're good to go you got a good loan the qualified mortgage report is something that our loan system spits out it's just going to say check mark check mark check mark yes you you have a qualified mortgage um we do provide you with a credit report uh again we don't review it we don't look at it we don't uh put it up as a part of the of our qualification process um the only time that will come to you will come back to you is if there's a red flag uh foreclosure uh any kind of federal laws bankruptcies you know major things like that then we'll say Hey you know Greg's bug uh you need to review this before we proceed or move forward um and then of course the proof of income whatever the buyer has provided you know all the supporting documents for the ability to repay um and then the main thing is the loan disclosures um so if we want to flip to the next one we can kind of go to what we're going to be providing them um the number one thing is the um the loan estimate right because again Dodd-Frank wants you to be super clear and transparent with your buyer um that shows what the loan terms are in black and white in writing and that they've acknowledged it right so later on they can't say why do you know my interest rate was 9.5 so here so here we're just going to show really quick you know um just the highlighted areas that um we're showing them where the loan term is what type of product it is um uh one of the big things on here is going to be the monthly payment um and that there's no balloon penalties uh prepayment penalties oh we didn't even go over that one so prepayment penalties is a big one too so a lot of investors think that they're allowed to charge their end buyer a prepayment penalty um but because they're used to being charged a prepaid payment penalty a lot of hard money out there you have pre-banded penalties so they say well well my loan has a prepayment penalty I need to pass that on to the to the end buyer but you can't because again you're not a protected class they're a protected so they can pay off their loan whenever they want and you you can't you can't stop them from doing that that's amazing and you shouldn't quite frankly and this was a discussion on Facebook here this week I saw uh no of course we want to get paid off early are you kidding me yes that shoots our returns through the roof so yeah the whole thing about like how do you determine your return right and the faster I get my money back yeah the better it is however you don't get the interest for the time period but if I collected interest for three four or five years and then I gave them money back I reinvest it so I'm gonna get a quick return and be boom and if I voted a discount I'm gonna get for those note buyers right if you bought it at a discount you're gonna get the entire upb and be singing to the bank the whole way there so absolutely it's almost always that's one of your best exits so yes you want them to repay quickly yeah refinance out whatever however they do it it is golden when they get out so yeah well yeah so the so again we talked about this you have to disclose your total payment at break it down what's principal and interest and what's your taxes and insurance um so uh you do have to Escrow on an owner finance loan within the first five years or at least for five years after five years if they want to remove the escrow they can pay that on their own but it's just really again you don't want to set your buyer up for fail failure so if you were to separate it in the beginning and they don't pay their taxes you're going to go foreclose on them because they haven't paid their taxes so that's not a good thing so it's better to just say hey this is what the total monthly payment is going to be and you need to be able to afford the total monthly payment right every month yeah um so on the loan estimate we also give them um the estimated cash to close so that they know exactly what they're going to be bringing to closing that's important um so that they're prepared and um um and they they all you know the other thing is just to provide proof that they have the the funds to close um and then the next slide will show kind of a breakdown of what the fees um so the this is an old um this is like an old uh slide here but um we have an estimate of what the closing costs are going to be we've worked with a ton of uh you know title companies and everything so we kind of know what what everything's going to cost um so we just do an estimate of all the fees um the the other thing is that we suggest is to always collect two months of escrow reserves um again this is just our suggestion it's not something that you have to do the other thing too that we recommend is for you to have them pay one year prepaid home insurance uh reason being is if they don't do that and they don't make their payments to the surfacing company for two months that um that home insurance could lapse and and you might not have insurance on your your assets or you know what's uh that your collateral protection right so um you don't want to be in that position where your buyer's not making their payments and the in the insurance is not getting paid um so that's a big one so we recommend that you have them pay it one year in advance that way no matter what they're always going to be covered within that first year and and so forth and so on forever and and all of these things added in here that as a note buyer that's all warm and fuzzy if when we see that kind of stuff written in there oh my goodness yes I'll pay you an extra you know percentage of whatever uh yeah as long as I can still hit my numbers but but this this is a very sellable the only thing I didn't see in here right and what makes us even more excited I'm gonna say probably the highest even above Interest being high yeah is the ability and for no buyers you're probably going to say is this legal and it is including servicing fees inside the note meaning the borrower can pay the servicing fees that we typically net out when we make an offer that the services fees 20 or 35 I know Kevin's listening right and so how we literally can set this up where we're buying notes in those originating if you can include this great that the borrower pays outside of their P9 Piti the uh the price of the monthly servicing and make sure you include it it'll adjust so that is even more fuzzy right Nathan that if they can pay servicing fees of 20 35 hours a month whatever the fee is it's golden Yeah Yeah well yeah like you said where I was netting that out so if that can be included in there oh my goodness yeah so instead clicking 350.

yeah right so yeah we always encourage every single person that comes to us we are always going to encourage to hire your Loan Servicing Company to make sure that they're doing all of the the reporting on your behalf making sure that they're collecting those those payments and paying all the taxes at the end of the year it's such a headache uh you know just with my own personal portfolio yeah I mean servicing is a lot so if somebody can do it for 35 a month please be my guest absolutely and I'll also make sure they're licensed okay don't get us a loan services company that's not licensed so licensing is a big thing and MLS show the fact that what states services are licensed I know Kevin is like so so how are on right now uh on the broadcast um so and also on LinkedIn you can definitely talk about this stuff but the idea that when the servicer is licensed in certain States they can collect on your behalf so hopefully that makes sense to you guys um Kevin made the comment as long as it's on the contract and they agreed to pay the fees we're good to go on that yeah so included in there because yeah we do on the we always do on the loan disclosures also just right off the bat just we just added on there for every loan disclosure that we send out regardless if you're going to use a Servicing Company or not uh just because you know we want to be sure right hey you know this is where you how you should go this is the path you shouldn't take so we got we had a ton of questions on this which is great um there's been a lot of questions on this both for the note buyers and for the milk creators uh let's go back to this one um Ally she's asking if she has a property that she wants to do owner financing on and then she gets two or three different applicants they all look relatively good does she run all let's say there's three applicants does she run all three of them through an rmlo just for the underwriting part of it to see which one best qualifies so we don't we don't do PR we don't do pre-qualifications without a contract um because of this reason right I mean if somebody is doing all this marketing and you're getting all these these people contacted you to buy this house and they're just sending them over to us we're going to be pre-qualifying all day long so um I would say you do you you have to do your best uh choose the best candidate um the number one thing that I would look for is you know how long they've been at their job um you know maybe if you've got three applicants but one of them has been at their job for 10 years um I think that that's you know a big one um if um you know someone's putting a large down payment or somebody's giving a better large dark I'm sorry down payment better than another person that's you know skin in the game um so they're not going to afford you know want to foreclose or a risk foreclosure um so I would definitely go with that person but um yeah I think that the the the the owner the seller um needs to make that decision first before they send them over to the rmlo and you can request you know and say Hey you know send me one pay stub or or One bank statement just something that you can kind of just look and see okay yeah or or um or just ask the questions how long have you been at your job what do you do you know just a quick quick interview okay awesome awesome as a reminder to everybody we're going to go through some more of these questions as a reminder Sarah is going to be at DME yes uh so you can pester with all kinds of questions in person can't get away I'll put the referral code I think it's mine whatever in the DMV uh in the Facebook comments as well as LinkedIn so yeah use Dave's uh so real quick aside use Dave's because it gives us the tracking we know uh which which referrals are working best so we can know if Dave is the best referrer I'm trying guys help me out high five or something I get a free like microwave or something right yeah the other thing is just just for people's information the reason I'm pushing the the early bird tickets so much is I need to know how much food to order I need to know how many water bottles to order yeah how many lanyards to order so for me that's my purpose for you is to save a couple hundred bucks for me it's all about planning and it's it's 100 about planning if you want to spend more money that's fine but then that just gives me a better head a bigger and today's the last day for being the last day so make sure you get on top of that so help me we have a ton of questions I'm trying to keep them organized so follow if I'm distracted here once in a while um let's let's try wrapping some of these questions in and basically like shooting arrows we feel bad I apologize go ahead Keith which one you jump off the page for you let's go uh Ali just real quick she I also asked about how soon can I sell a note after it's originated it depends if you're talking to me I'll buy it right away you're talking to Dave if it's been through an rmlo I'll buy it immediately Dave wants a little bit of seasoning on his for three six months we'll buy a table but we're gonna give you a huge discount on your on the Note itself on uh because of just the risk level yeah I'm going to put a really quick suggestion there um if you actually establish a relationship with your note buyer um you could probably have no seasoning on your notes um with maybe like a buy back Clause you know um that says hey if this doesn't perform within the next three to six months or something happens I'll buy it back from you and it's just kind of that you know you establishing that relationship and that that they that no buyer knows that you're going to be sending them good good paper and and so just as a suggestion yeah and if the borrower's been attended for a year that's still seasoning that tells me the fact they've been able to repay yeah yeah okay good question if it defaults Ally then yes you got to go through a foreclosure that's just how the process goes yep um sorry good job somehow so how made the comment they used Nathan's referral good job sorry guys screen truth questions here yeah make sure nothing on Santa cut I sold a piece of land which the buyer has placed on mobile home on now what can I do in retrospect to protect myself yeah so they if they're they're yeah then [Music] it would be a good thing to just reorganate it yeah we had a question from the no Pusher on LinkedIn that can you modify can you do that modification with only land contracts or existing Notes too anything you've originated could be uh newly reported you can't modify it at the terms of that not done it correctly so you have to create a whole new process whole new because that original note can't be modified for my knowledge and we'll ask Jeff on the next call you have to create a brand new note and make sure it's legit and underwritten and arm load for that state now that being said yes uh just if you're going to a node buyer most note buyers most private note buyers will look at whatever pay history that you had and count that towards the history of the note most of the time you'll get some banks or somebody that they won't qualify that most private buyers they'll look at whatever pay history you had beforehand and they'll say yeah that counts just FYI so you haven't lost anything oh and so um I'm just grabbing some questions for Nathan Mark Jones Mark's asking what about the self-employed people that may not keep the best records of their income he's self-employed or paid cash so we're very used to working with that clientele um so we help them in any way shape or form to come up with that proof of income so for instance you have your landscaper um that you know has maybe five houses and one commercial property that he uh that he gets money from and they pay him cash um so we would um kind of help him out by saying okay let's go get a 1099 from each one of your employers let's do a verification actual written verification of employment from each employer um and um you know just start getting um you know building um I guess building that proof of income with with additional documentation um so that's something that we're used to um so that's something that will work directly with the buyer to obtain um again we're very used to doing that we have that all the time um now the only people we cannot help the only people we cannot help is somebody who says I'm flat out I'm not employed I don't have a job and trust me I've had those okay well those are the only people we cannot help unemployment somehow they're receiving mysterious income you probably want to run away anyway so that's fine so the next question I see here that stood out for me um was from Nick good question we're my next question does how is the usury law affect APR are you familiar with that how does it is there effect if do you know how that affects it so um the the usury I think that goes way above above the threat the thresholds that we're looking at staying under um this is why we're here and and having this talk today is so you don't get to that point right um so if you're gonna go Rogue and you're not going to use an armalo and you're just going to go and charge the buyer whatever interest rate you want then you definitely need to just go research that in your own state in your own State and see what that that Max usury rate I think it's like 24 or something so if if you're going to be a predatory lender then yeah go check those thresholds out but if we're what we're talking about today is not to be that not to go over those thresholds um so again the higher price right now is going to be the six and a half plus Prime so that puts you around 12 13 um if you're going to go high cost you're probably going to be around 15 14 to 15 percent we're used to buying it at six and seven percent it's a totally different Market here so yeah so that's not bad at all so let's go through some of these questions here so hell's got a good one about uh when you're looking at like if you're trying to determine somebody's debt to income let's say you look at that credit report and then you see that there's like child support payments on there how does that affect their their debt to income ratio sure we'll add it to their to their to the um you know obviously we'll get current proof of what they're paying today um yeah but yeah that's definitely something that will add to their liabilities yeah good question um Edgar the question was regarding a situation where the market value the property is 150 they asked 160 with 10 down would that be compliance with situation um regarding the fact that they basically sold it for more than the market value says it is that's a very common thing with our finance um there's no wrong or right way to do that thing it's more about the borrower um making sure they have the ability to repay so they basically would you're saying is you would sell for 160 they put 10 down and then their your Finance arrest I hopefully that corrupts on your questionnaire yes and I mean the there there is no I mean that's the whole benefit of doing owner finance right is that you can mark up your property as much as you want um versus going retail and having to get you know a lot a lot of these notes don't that they don't have an appraisal so even if they did okay so one of my personal properties I'll get an appraisal it'll say hey your property's this is the appraised value but as an owner finance uh seller I'm going to sell this property as at XYZ um and that's my prerogative to do that and if you want the house with owner finance you're going to pay the higher premium right and typically I tell everybody stay under 10 right 10 is probably 10 to 15 is probably average is probably good but anything over that then yeah and and maybe the clarification for those that are doing seller finance big the fact that you are offering financing means that you don't have to compete with the bank on a rate I was talking to somebody in Utah a couple weeks ago and and who showed me that he's got this property that he wants to sell on terms and he was offering five percent I'm going why why why are you trying to undercut the bank like you're shooting yourself in the foot uh there's no reason to offer that at a cheaper rate they're coming to you because they can't qualify for the bank which means you can charge a premium so go ahead and ask for that 10 because that's the way they can especially if you're especially if you're thinking of selling that note the number one thing recommendation that I'm going to give you guys or advice is you have I would you would have to have or have a conversation with your no buyer ask him what he wants right you know what DTI are you looking for what LTV are you looking for um and and you know the interest rate is a big one I had someone call me too and they said oh I'm gonna write this note at eight percent do you have any note buyers I said nope I don't Abby no you you can't if you're going to do this as a business you're going to want to sell that note at the end of the day it has to be attractive to your note buyers absolutely before you go create that note I'll put the blog in the comments section of what makes no valuable right it's all about the term the lower the term the quicker payback the higher all the interest rates right um balloon's okay little stuff it's a matter of how fast I can get my money back and how much money I might get on the money so those two pieces are principal thing forget the upb and we've talked talked about this immensely that and I'll talk about DME that get over this idea of percentage of upb because it doesn't take an accountant the fact that the interest rate the term everything there is missing so hopefully we drive it home some more dma but the interest rates the Upp is only one part of it and really is not a big part it's the interest rate as well as the term it's a mathematical Financial calculation um to go through that so yeah um I see Ray has a bunch of good questions too regarding um is a higher priced code for predatory or what is the current threshold to stay under to stay with me a predatory lender everything we talked about today correct yeah yeah so it's um you don't want to go into the high cost so high cost is where you don't want to be that's the threshold you can you still can like I said the buyer just has to go through a little bit of Loops but um so again six and a half plus Prime that's your max interest rate to stay under that threshold and you can go bankrate.com and go look up what the prime brain is for the week um I think it adjusts every Tuesday so you can go there check it out do your uh you know just add your six and a half that's on a first Wing mortgage by the way so uh if you are going to be writing a rap node or a sub 2 and it's going to be considered a second lien then you can go eight and a half plus Prime gotcha that's great and then and I can see Mark's wheels turning on this other question if you're gonna do an arm where we talked about like an instead of a balloon you do an adjustable rate not for five years they increase it he's asking is there a cap on that and how do you determine how much you can increase it right um so so that's a tough one because you know I'm gonna say you know I so we're always going to have a floor so you're gonna ride an arm we're going to have your floor you're going to start at 10 let's just say um your floor it will never go under 10 no matter what um and then so you say after five years we're gonna go two points above the APR plus Prime sure so so then you know that's how you're gonna how you're gonna write this promissory note to say hey after five years whatever the interest rate is of that that in that moment it's going to be six and a half plus two points on top of that so that's a bit of again so remember an interest rates drop then I mean remember these thresholds and everything that you're doing yeah yeah if you have a specific questions Sarah in the chat box there's a link for uh should be pinned for a webinar thing just fill it out and you'll get direct information and she'll get yours well so um yeah yep really good very interesting so how asked or made a comment that on arms I would have a cap of two percent per adjustment that's well said so I'll appreciate that okay okay this is being recorded this will be on YouTube or podcasts all that good stuff um so feel free to jump in there you'll get it if you fill out the webinar you're gonna get a bunch of emails just to let you know more about it and we're gonna have a legal attorney on in two weeks uh Jeff Watson to explain what happened if you did it wrong how can you correct that part of it and all the kind of intricacies and just been around for 32 years that you told us so he's been around for a long time so for sure and he's one of the top guys to talk about this on financing he's going to Washington he's doing all these yeah he's he's a fantastic I'd ask these questions too so Ali asks a really nice question all right a question for us Nathan do we pay less percent of upd when the borrower has an I-10 instead of an SSN does that matter to us that's a good one that's I've never thought about that before that's a good question yeah I don't think that would have can I say something go ahead go ahead yeah did I say something I have I have a note buyer or lender that only that that likes only iTunes yeah and why is that what's the advantage or was that perceived in our experience here in Texas uh we have a one percent default rate on on I-10 borrowers okay that was my question and then my the other place my brain goes is like if if there is a default can I still foreclose with no issues and I believe the answer is going to be yes because I'm foreclosing for the title yeah I don't think that would make a difference that's a good question for Jeff bring that question back up yeah come back if you can join us in two weeks and 26 as well we have Jeff on for that's a great question for us for saying what we care about we've again we've bought Bank originating notes so this kind of goes out the window but I would say that as long as it's underwritten and they have the ability to repay and our focus is note buyers is can if things go bad can I foreclose and get that property back and sell it you give them money out of it exactly all we care about so as long as the legal process can secure that I'm sure you know Kevin could jump in here too as long as that is not affected I don't care what it is yeah right as long as I'm going from in my foreclosure yeah and that's 90 I mean for us it's 90 of our business because um you know here in Texas you're you're I mean that's majority of of our clientele that can't the people who are going to go to owner finance is because they can't go to Traditional Bank right so they have a Social Security number and they can go get a loan through a traditional mortgage um they're not going to go this route so the people that are the people that will never be able to get financing through a bank right just to keep that in mind interesting good question all right Sarah I think we're kind of coming to a close to Dave are there more questions here we go I don't think so um if anyone has any final question before we let you guys go please put in the chat before we let Sarah go once again I don't see the pin thing in there so I'll put the repin in there click that link fill all the information and you'll get an email right from us um it responds back to from me uh we encourage you to go DM me signed up uh if you have notes for sale you can reach out to both of us you can send them an email and I'll see share with Nathan we are separate companies but we cooperate together so we love to talk about the stuff and make sure you guys are doing these right so we can make a bunch of money ourselves so we're a little selfish in that world but I guarantee you as many loans you can sell us we'll give you the money and you can repeat this process and go create as many notes you want to so we can buy them from you so that relationship can work out um a lot of us out there are no buyers who do this specifically work so we encourage you to kind of Stay Stay involved stay active and join us on the 26th uh you'll see a post shortly uh about that and we'll go from there if there's any other questions I appreciate everyone's giving thank yous and uh Ray say thank you and Kevin all that stuff everyone's saying and happy Cinco de Mayo yes happy Cinco de Mayo Melissa she can spend another eight hours on this topic well the legal process will be great feel free to to join with us she can email us if there's a topic you want us to cover on that world let us know and we'll definitely focus on it we want to help you guys create the best Note possible so then we can help we can make our money as well so we're a little selfish like I said um but first and foremost we want to thank Sarah so much for spending uh an hour and a half with us on this Friday afternoon uh from Texas uh we're looking forward to seeing your person at DME in Nashville uh and June 2nd um there's another reminder the hotels expire today so uh and your tickets go up in price so awesome uh if you have any other questions let us know the Link's there and we'll go from there Sarah if you could hold on for me or disconnect from the public and wrap it all up thank you everybody have a great weekend thank you very much sir foreign [Music] so really just the the difference between an armalo and the underwriter right so the armalo is actually originating that loan for you on your behalf as a lender the underwriter is just making sure that the buyer has the ability to repay [Music] [Applause] [Music] hey everyone Dave putz here from jkp Holdings alongside me Mr Nathan Turner we pause for a little delay everyone a little technical stuff going on here I'm glad we can connect for a few minutes before we get started with all the stuff we wanted to do some quick housekeeping um as you probably may know I'm Dave put some jkb Holdings Nathan Turner from Earnest investing we have a big event coming up Nathan it's a big deal man just a little bit all right so for those who don't know we've been in note invest since 2010 buying Traditional Bank Loan stuff some little bit of cell refinance stuff but we're seeing a big shift and Sarah financing is becoming the thing and I it's funny for me I actually started doing seller financing so now for me it's kind of coming back full circle where now I'm buying seller finance notes which is what I was trying to do in the beginning I was creating these notes and trying to sell them now I'm the on the other side and I'm I'm trying to buy the ones that people are creating which is pretty cool yeah so it's it's really cool to to have this kind of go first full circle and for those who are saying why would you want to do that what is the advantage of it for us we can't buy three percent paper and for those who've been out there we I put a poll we put a poll out yesterday about what do you bid on base of upb or whatnot and a lot of people didn't realize interest is a huge factor in what we bid on yeah um and we'll be talking about the vme right how to bid and what we're finding out is people don't realize it but what's our finance the interest rate is very attractive yeah yeah the higher the higher you can set that the easier it is for you to sell it the easier it is for me to buy it we can do a lot of business but you gotta you got to write it properly yes and you can write it in a way that makes it more attractive for sale later yeah and when we're buying these papers and people say why do you care well when we go to foreclose we don't want a prominent borrower we don't want you to have a problem with the borrower we want to cash people out for those who are note buyers understand the fact that you're buying 10 11 12 paper times and not five and six percent interest so when you're gonna buy you're gonna get a much better easier return and your actual discount is a lot less which is really attractive yeah so all these things and more we're going to be talking about all this stuff today is the last day people to save money on your DME ticket I know a lot of people who bought already and that's fantastic good I'm glad if you want to pay more I'm actually fine with that I've just I'm trying to help you out help me help you save some money today is the last day to get 200 off on your ticket and it's also the last day to save money on that hotel block so make sure you get that in today if you bought your ticket but not your hotel yet get the hotel because today's the last day for that uh that cheaper rate and if you're curious what it's about DME has traditionally been a note investing conference for note investors to learn and game it's not going to be that way this year Nathan's running an awesome multi-faceted notes investing new origination Market conference where people from both sides of the table per se is going to be in attendance and be talking to each other so those who are originating notes and want to get cashed out guess what we're going to be right there with you with checkbook grade rate a deal for you and those are note buyers you'll be sitting next to people out there who have loans who want to sell them and want to get cashed out and willing to sell at a really awesome discount yeah we can here's the cool thing I was just having I had a conversation with the guy yesterday where he says okay so if I'm going to create a note if I create it with these terms then you would buy that and I said absolutely all day long yes and he's like oh wow you know stars in his eyes dollar signs yes yes yes yes we can do a ton of business together and so we're here to help each other I can't wait to meet a whole bunch of these seller finance people that are creating notes and for those who know buyers are saying we had a couple reach out saying Dave your webinar this week is really not for us well we're gonna tell you it's holy is for you right if you are going to buy a seller finance note it's not the traditional um due diligence process right there's another step to it because if you're buying paper that's not originated correctly you're in deep water why is that the borrower can sue you we're gonna go through the legal processes next our next webinar on the 26th of an attorney right but when you're creating that paper if it's not originated correctly for owner finance property you can get sued I'm sure none of us want to get sued right and there's fines there's levees and all that stuff we'll talk illegally next time we're today talking about what that process is to originate correctly for Sono buyers you got to make sure that collateral file has the armalo logo and as well as the underwriting there to prove the fact that borrower has the right has the ability to repay and we're going to cover a lot of that today but a DME is all going to be having that same conversation in live in person in Nashville yeah so get your tickets last day and last day go and get them Diversified mortgageexpo.com so we're gonna bring in a special guest now so we have a special guest who's gonna be coming on today uh before we bring Sauron we understand the fact that arm below is very confusing for bulk milk buyers and Originators and a lot of people out there are originating in underwriting without both sides they're doing what we call a checkbook underwriting meaning you have a checkbook you're underwritten and you get the loan that doesn't work right so when we work with people like this we want to make sure that we help them we're not experts right we're going to help you along that process so we can buy them we have an alternative motive here right we want to cast you out refi and let you go buy more enriching more loans yeah right so when we come to DME be present be ready and if you have all your tickets already make sure uh check out the DME uh if you need a link whatever put in the comments um and whatnot so we already got some comments coming in so we're gonna bring on Sarah let me uh flip the screen so awesome so we have Sarah on today she is an armolo expert at Texas Sarah could you explain first how'd you get in the space how did you learn about all this stuff in the just the background of Who You Are sure um Sarah Montes Texas Pride lending um so yes we I started with um with the gurus of the gurus of owner finance um I started um working with two gentlemen that have been doing it for like 20 years and all I did was just sit there in their office and listen listen listen listen and just soaked up I just soaked all the information that I could especially when someone's been in the business for so long you um use here and you see you know the historical side of owner finance and um whenever Dodd-Frank rules and regulations came about everybody started freaking out oh my gosh you know we can't do seller finance anymore and you know you learn that the history of all of real estate investing is that you always try to figure out how you're going to continue going uh abiding by the rules and regulations all these new compliance laws come out all the time it's just keeping up with them and and making them a part of your business so that's what we did that's why they brought me in because I was a licensed loan officer and they said hey you know would you be interested in in originating owner finance nuts for us because now we have to do it now it's required so uh so I I came in learned the business um as far as the the owner's uh Finance side so um we pretty much developed the r Melo you know package or the rmlo you know what's gonna what's gonna satisfy this new law um so um I don't know if anybody's familiar with Grant Camp long time ago he was uh you know just very active on social media doing a lot of webinars teaching people how to do this um very young very young guy he um he he also was one of my mentors but I mean he had 60 homes within you know one year um and it was all you know sub twos and creative financing and wraps and so it's not just owner finance right it's all the other stuff that makes it so interesting is the creative financing behind it all um so that intrigued me a lot so that's why I was really focused and really determined to learn all of it every bit and piece um so that's how Texas Pride got created uh was solely for Real Estate Investors that were creating owner finance notes and this was you know good 15 years ago 10 years ago so we um what year did you get started uh we started back in 2013.

so that's when we started yeah and I forgot to add in the housekeeping yes this is recorded this will be on YouTube our podcast um our website we can actually have it so I'm on jkp Holdings slash webinars you'll see recording on there as well all this will be recorded and available for the podcast or webinar so yes so let's go back interesting just one real quick so I had learned about Dodd-Frank I was doing all these seller finance deals and putting you know in Columbus Ohio was a bunch of land contracts and uh and I'd learned about this Dodd-Frank thing and I'd heard about it and I knew it was going to be implemented in 2013.

so we started looking around me and my old partner we started looking around for an rmlo we knew that's what we needed we knew that that was what was required we could not find anybody nobody it was like just they just did not exist knowing that that was the rule and knowing that we couldn't find anybody we had to we had to shut it down there was no way that we could continue doing it properly and legally so we we abandoned that model which was really too bad it was a great model but we knew that we couldn't do it right so I'm so glad it took a couple years for me to find people like you that you had to underwrite and how to how to write them properly so that they're done legally so we have to understand that Dodd-Frank law came out of debacle right it literally came out of the problems that were happening back in 05 or 60708 and the I understand the fact that borrowers were really getting in in bad shape because of poor underwriting and whatnot so new rules came out for that reason to protect the borrowers so this entire world is around protecting the borrowers and doing it legitimately Now understand if you are going to try bypassing this stuff and get away with it we feel that they're going to actually make the rules even stricter if it continues to be violated because they want to protect all the people right so those are listening on LinkedIn and Facebook understand that yes could you get away with it I'm sure you could we're not looking to get away with anything we want to be right to the borrowers and we want to do good business right and if you're doing a lot of these notes and creating them do legitimately right now you may lose some borrowers because they don't qualify but they shouldn't qualify them right we're not just screwing people over here so we'll make sure we're clear that this law came out to protect borrowers to do it right absolutely yes and if you're going to act as a lender then you have to follow all the all the laws that lender that typical lenders do as well yeah you know granted the underwriting guidelines are going to be way different but but you still have to follow the the general rules and general laws yeah so when we talk about this stuff you know there's a lot to do with this idea of armalo with underwriting and whatnot uh and then Sarah put a great PowerPoint together with us um inside of our our our our links there's actually a link if you want to get Sarah's information click on the the pin post and that will give you a webinar link just fill out the form and you'll get an automatic email with Sarah's information so to get that that'd be great with that said um when we work on stuff like this we hear a lot about this rmlo and it's underwriting and Loan originations and Loan these are really words that for note buyers we never really dealt with or heard about and for well we're flying out me and Nathan a lot of Originators haven't heard about it either so can you before we get the PowerPoint can you kind of break down what an armalo is and what an underwriter is I know we got some bunch of questions initially we're gonna ask and then we'll open up for Q a but what is an armlo what is an underarm what's the difference between the two sure so the the arm low is originating below um so we are we are the loan officer that's going to originate for you I guess more importantly the arm lows the mortgage company or the mortgage broker that is going to originate that that loan for you uh to keep you compliant because Dodd-Frank does have a licensing requirement so as an investor real estate investor you're not licensed to do loans that's why you hire your rmlo slash loan broker to originate that loan on your behalf to satisfy the licensing requirement so that's why you use the armalo piece of it an underwriter is just looking at someone's income and their debt their debt to income ratios and figuring out whether or not that they have the ability to repay so the other thing with Dodd-Frank one of the rules for dodd-franka's ability to repay so you do need the underwriter to uh review to process the loan and say yes this person does have the ability to repay this loan um so that's the second part of it um with us obviously we do we do all everything we do the armalo side we do the underwriting side we provide you with a full complete underwriting package um one of the other rules on Dodd-Frank is to also disclose the loan terms to the buyer um so that is very important as well so the buyer knows what what kind of loan they're getting themselves into right it's all in black and white and it's in writing and so that's another piece of of the the armalo process um so you know everybody just hears the word rmlo they really don't know what it is and it does stand for Real Estate mortgage loan originator um which is across the board for anybody that's originating loans you know whether it's a bank or a mortgage company or or anything so um for us and specific to what we're talking about is we're originating those private notes owner finance notes um so to keep you compliant since you're not in the business you're not licensed this is why we come in is to help out with to just make sure that you're creating qualified mortgages and the reason to go and I mean the reason to do a qualified mortgage right is to get more Banks to get more uh more dollars for your uh for your notes uh if you go to foreclosure that you're not going to have a problem and your borrower's not gonna fight it right let me argue that that that balloon was created incorrectly or illegally yeah and we won't get the legal side of it just the fact that understanding you can be sued by a borrower if you're not licensing you're creating these things or if you don't want to write correctly foreign yes so there's going to be several reasons um so if you don't do if you say no you know what I'm just or my you know there's a lot of attorneys a lot of tile companies out there that are saying uh you don't you know you can go ahead and continue doing solar Finance the way you wish uh because it's uh you know they don't understand that um uh the that what what's happening with Dodd-Frank is that they're protecting the consumer so if the the buyer is purchasing a home as their Homestead that's where it becomes you know that it falls under the Dodd-Frank rules and regulations so a lot of people don't know that um and so if they're going to buy that that property as their Homestead they're a protective class and um so that's why you have to go through all the different um qualifications for a qualified mortgage is uh number one you know points and fees you can't charge accepted fees you get a Max of three percent uh your loan terms um can't have a negative advertisation they got to be under 30 years or less um you know no balloons you know we'll talk more about the lens of you guys when we get to that point yeah but you can't do risky features that's the most important thing you don't want your your you want to create a qualified mortgage a mortgage that someone is going to actually be able to pay um that's not going to default um you don't want to put risky features in that note um to set them up for failure right I understand we're talking about owner occupied homes investor homes don't apply to here commercial and whatnot these are strictly for bars for occupying the home you're creating the note for so if you're doing reps right and you create a note for a bar with a living a home you must be underwriting you must be using an armalo if you can do or three or less you can do your own we encourage you to underwrite still with the licensed person who can do the underwriting part but you need to understand that if you're doing this in a business you should be doing this so we have some quick questions I know Nathan I sent over to you as well um yeah exactly where are you currently licensed to do armlo work um so right now it's Texas and Arkansas uh we're definitely going to go into other states Florida Oklahoma and Colorado so we have we already have you know several that we're going to uh put on our list to get started with that um I know you know we've obviously we've been here for a long time we've done this for over 10 years um and we get the calls all the time you know I wish you were licensed over here I wish you were that and we just we just got so busy in Texas that it was impossible for us to take on other states uh but now we are to that growth level where we can say okay now it's time and now we can go expand into different states and start helping owner finance investors um in different states so definitely reach out to us and let us know what state you want us to get licensed in and we'll get that process started that's awesome but in the meantime though what we can do we also offer an out-of-state pack underwriting package so we can still underwrite that file for you um so that if you're going to create this in this note um and you want to make sure that your buyer your buyers are meeting at least you know the the the Five Points of the qualified mortgage um we can definitely do that for you we can still provide you with a complete underwriting package um for you to have in your you know in your files and if you do have to go to foreclosure or anything like that at least you did that part right and that's a little bit of a protection there for you I've got one other question just on on terms and licenses and and uh titles I guess another one that we've heard is processor is that the same as an underwriter or is that something different than an underwriter yeah so um a processor is just really just an admin putting together the information um an underwriter needs to be licensed got it awesome so yeah so the difference is armalo Underwriters have to be licensed uh a loan processor should be by law should be uh licensed as well if they're they're touching you know a mortgage loan um but yeah so yeah so you can have a processor let's just say you're a real estate investor and you want to have a processor you want to hire your own person to do it you can but you have to have a mortgage company or you have to be licensed your company has to be licensed and then you can hire a processor an underwriter to work under you but the first step is to be licensed okay yeah we all hear all these different terms and I'm like okay is that what this does you know it's very confusing and very overwhelming for even us note buyers those who are creating these notes who are following these courses of doing substitutes and wraps I'm sure it's even more confusing because I just want to do real estate right yeah yeah and then so you know that's the other thing that's another thing that I always tell you know when the when uh we actually got a recent rap law um passed here in Texas that that just added more um you know obstacles to do wraps um and it's just the Texas law here but um so when that happened everybody said you know what this is it I'm getting licensed okay so they so what happens is they start researching they're like wait a minute it doesn't matter if I get license I still can't do this I mean this is a lot of stuff to know and I don't know all the laws and regulations and you know the 900 pages of Dodd-Frank so they some of them still got licensed but they still use Texas Pride to underride and process and do the do the the you know the back end uh office work of of the origination let's dive into I know that there's some comments going through about independent loan processes required to be licensed in most States from Sohail um and then it's in some uh select States the independent Underwriters required to be licensed I'm presuming that's similar kind of thing thank you so hell for chumming in there um that's awesome um so I'm glad those are joining in here feel free to ask questions um uh Nathan did you get a chance to review some of the questions we got yeah I'm wondering if we do we do the questions or should we get in you'll see now I got a PDF from you I'm presuming we're gonna run through the PDF because that they is that the best way to decide or you have this in PowerPoint as well okay oh yeah I mean um yeah the PowerPoint the PowerPoint but uh just to the the slides of time all right thank you all right so right here on this first slide I said safer because the one of the the acts was called The Safe Act yeah so just if anybody's wondering why so it relates to the Safe Act got it got it so what we're talking about here is you know seller finance stuff and the idea of what it qualified to be a qualified mortgage and that's really protecting the borrower or stuff so I'm glad we can discuss that that that feature of it um to make sure people understand what that means and go from there and again there's no buyers this is a huge plus huge huge huge uh maybe even a deal breaker so yes yes so if you're looking to get out of your loan for whatever reason I highly encourage you to kind of stay compliant yeah as you can see a lot of information she's been doing it for a long time um Texas prize been in Texas for a long time doing all this stuff and most loans that are being originated are in Texas so Texas is the reason we're really focused on Texas rmlos at this time I know Ellis asked about armalo in California um I have been in touch with some people who can do all metals in other states so feel free to come out and talk about this so we went over a little bit about this Saturday I'll let you kind of chime in here can you explain a little bit more about this process sure yes um so um a lot of you know the big question is why use an armalo um so it's been a loss since 2013.

so again you know it's not a lot that just happened yesterday everybody needs to get educated if you're going to be doing this as a business you need to stay compliant as a lender um so that's very important just to do good business um you're going to be you know in the real estate game you're going to start selling notes you want to get top dollar for those notes so I mean if you're not going to do it right why do it at all right so um that's number one um and then so secondly the Foreclosure protection right so if you um and we're going to call them the end buyer so the end buyer is purchasing a house and you know within four to six months they stop paying you need to to go to foreclosure court that um that uh judge is going to say well did you originate this correctly um are you licensed did you make sure they have the ability to repay back this loan they're going to ask you all these questions and if you don't use an armalo you're not going to have the proof that you did all the things that you were supposed to um so if that were to happen um you know so what what an armala does is protect you from that foreclosure um that foreclosure Court when you get in there you can say here you go I have an underwriting package I have this I have that I have all my ducks in a row I'm super organized I am doing business correctly and then they'll Grant you the Foreclosure without any issues awesome um so I don't know if we want to go into the the ramifications on uh on that but maybe here in a minute yeah those who are coming on the 26 we'll be doing a follow-up on the legal part of it like what happens if you don't do these things so let's focus on what the proper origination is but we feel free to kind of Divi if you feel needed to switch over so let me scroll down yes let's go to why the the whole Dodd-Frank protection act yeah got started um you know the too big to fail situation in 2008 the financial crisis um they were giving loans to anybody that had a heartbeat right if anybody who had a poll third giving lunch to so that you know it it crashed or or you know our financial system and um and so they don't want that to happen again and so how do they fix that is just to regulate any lender it doesn't matter if you're a bank or a broker or you know a seller finance person that's loaning money um uh I do and just to add to that um I don't only just work with seller finance investors I also work with a lot of people that are offering private financing um so a lot of investors are creating um kind of like a Loan Fund or a hedge fund and they are just loaning money to anybody that wants to go buy a house you know and so um you're acting as a bank so if you're doing that you know this is this is where you need to uh make sure that you're following these rules but yes they ask about is this affect any kind of uh land notes as well is land play role at all in this okay so that's a great question I get that all the time um so vacant land or vacant Lots um if that person is going to utilize that that vacant lot um as their Homestead residents within the first five years of that note then yes you have to follow these rules and regulations because okay so this is what happens you sell a lot you like oh you know I can sell it however I don't have to go through an arm low um and then in two years they build a house or they move a permanent mobile home there um and now it's their Homestead and now and and then you have to foreclose well guess what wait a minute this is their Homestead why didn't you originate it correctly so just to protect you again you know number one and number two so if you do create a qualified mortgage on that vacant lot um a lot of people are selling those so those notes right so they're they're splitting up they're they'll go by 100 acres split it all up and then sell those notes and and do it all over again yeah yeah good so I'm going to add that when you're selling notes and you know when you go to a note buyer what do you say oh I have this piece of land over here and yeah what do you what do you give them what do you give them just a three you know three paper uh document with a promissory note um so with our package you can actually give them a hundred a stack of 100 you know 100 page uh package that makes you look organized legit and makes you look like somebody I want to do business with right your no buyer is going to be impressed and you're nobody's gonna say bring me more I want to do business with you uh but if you bring them a three-page promissory no they're like what is this yeah two weeks ago I got one I got I had two notes there were one page each and I'm like oh my gosh come on that's not gonna fly there's a lot of things that g....