Dear Quest Investor,
As you know we have had to reduce our rate of return due to borrowers struggling with their jobs and income. The following is the update on our Quest portfolio. I am sure you have heard in the media about how the real estate market is improving. It is an amazing market I am witnessing things I have never seen before in my 30 years in the industry. Believe it or not inventory levels are at very low levels which are great for us at Quest as it is bringing property values back up. The reason inventory levels are so low is that the banks don’t want to foreclose, but we will discuss this more later in this letter. As you know property values have dropped dramatically over the past two years, it looks like now that the bottom of the market was back in March or April and today we are actually seeing buyers bidding up prices again. This is obviously excellent news for us at Quest. The buyer demand is extremely strong due to the low interest rates that the Fed had brought us.
The challenging economy has certainly made the lives of our borrowers and us at Quest more difficult. Consumers have heard thru the media about loan modifications and they obviously want one. When we receive a loan modification request we deny the request. But the word is out that if you want to get your loan modified you need to stop making your mortgage payments.
When we have a borrower that is not making their payment we address each file on a case by case basis. There are several different strategies we may employ depending on the circumstances of the file. Our first action is to contact the borrower to discuss what their circumstances are. We also contact the first trust deed holder if we are in a second position to determine the status of that loan. If the borrower is behind on the first by 60 days we begin a foreclosure regardless of their status with the Quest Loan. We cannot afford to allow the first to fall behind for several reasons including a default of the on first which would put our loan at risk. Additionally, we cannot allow the first mortgage to grow as this increases the loan to value position that we have, couple that with the reduced property values and our principal could be at risk.
Filing the notice of default has proved to be the right move. It has forced borrowers to take action as opposed to do nothing. We have found that the first trust deed lenders do not want to foreclose and will let a borrower go well over a year before pursuing foreclosure. Our NOD filings have pushed some of our borrowers to list their property for sale. Two of our loans are currently in escrow and should pay off in October. We have taken owner ship of three properties, one we just completed the eviction process and will be re-selling it; we have received a very strong interest in the property and should sell it very quickly at a gain. The others appear to be very close to break even one way or the other. After the former borrower is evicted it will be easier to determine based on condition and market demand in the area.
The good news is that our overall portfolio is in very good shape in spite of a very challenging economy. The plan is to continue to deal with each borrower and property’s circumstance individually. I anticipate that we will have some properties that we foreclose on that we will make some money and others that we will lose a little. In the event we have any loans that we are going to take a significant loss by selling the property then we will keep it in the Quest portfolio and rent the property. There is no doubt in my mind that property values will continue to rise over the next few years and we can sell then.
These are challenging times for us and candidly it hasn’t been fun; so many people are really struggling with job losses or severely reduced incomes. Yesterday we received a call from a borrower who has been a very good borrower explaining that her husband has a heart condition that will not allow him to work and informing us that going forward they will be unable to make the current payments. I will review each file in detail to determine what is the best course of action for us.
I will keep you posted as we work our way forward, if you have any questions please feel free to give me a call.
Sincerely,
Mark Prather
As you know we have had to reduce our rate of return due to borrowers struggling with their jobs and income. The following is the update on our Quest portfolio. I am sure you have heard in the media about how the real estate market is improving. It is an amazing market I am witnessing things I have never seen before in my 30 years in the industry. Believe it or not inventory levels are at very low levels which are great for us at Quest as it is bringing property values back up. The reason inventory levels are so low is that the banks don’t want to foreclose, but we will discuss this more later in this letter. As you know property values have dropped dramatically over the past two years, it looks like now that the bottom of the market was back in March or April and today we are actually seeing buyers bidding up prices again. This is obviously excellent news for us at Quest. The buyer demand is extremely strong due to the low interest rates that the Fed had brought us.
The challenging economy has certainly made the lives of our borrowers and us at Quest more difficult. Consumers have heard thru the media about loan modifications and they obviously want one. When we receive a loan modification request we deny the request. But the word is out that if you want to get your loan modified you need to stop making your mortgage payments.
When we have a borrower that is not making their payment we address each file on a case by case basis. There are several different strategies we may employ depending on the circumstances of the file. Our first action is to contact the borrower to discuss what their circumstances are. We also contact the first trust deed holder if we are in a second position to determine the status of that loan. If the borrower is behind on the first by 60 days we begin a foreclosure regardless of their status with the Quest Loan. We cannot afford to allow the first to fall behind for several reasons including a default of the on first which would put our loan at risk. Additionally, we cannot allow the first mortgage to grow as this increases the loan to value position that we have, couple that with the reduced property values and our principal could be at risk.
Filing the notice of default has proved to be the right move. It has forced borrowers to take action as opposed to do nothing. We have found that the first trust deed lenders do not want to foreclose and will let a borrower go well over a year before pursuing foreclosure. Our NOD filings have pushed some of our borrowers to list their property for sale. Two of our loans are currently in escrow and should pay off in October. We have taken owner ship of three properties, one we just completed the eviction process and will be re-selling it; we have received a very strong interest in the property and should sell it very quickly at a gain. The others appear to be very close to break even one way or the other. After the former borrower is evicted it will be easier to determine based on condition and market demand in the area.
The good news is that our overall portfolio is in very good shape in spite of a very challenging economy. The plan is to continue to deal with each borrower and property’s circumstance individually. I anticipate that we will have some properties that we foreclose on that we will make some money and others that we will lose a little. In the event we have any loans that we are going to take a significant loss by selling the property then we will keep it in the Quest portfolio and rent the property. There is no doubt in my mind that property values will continue to rise over the next few years and we can sell then.
These are challenging times for us and candidly it hasn’t been fun; so many people are really struggling with job losses or severely reduced incomes. Yesterday we received a call from a borrower who has been a very good borrower explaining that her husband has a heart condition that will not allow him to work and informing us that going forward they will be unable to make the current payments. I will review each file in detail to determine what is the best course of action for us.
I will keep you posted as we work our way forward, if you have any questions please feel free to give me a call.
Sincerely,
Mark Prather
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