Executive Summary: Solving Real Estate & Banking Crisis
Benefits
RADHA Mortgage provides banks the 5things they need most:
1. Time,
2. Capital,
3. Transforming real estate liabilities into performing assets,
4. Accurate pricing (above market price)
And most of all =
5. Reducing cost of (Real Estate) Write Downs by 50% to 100%
Problem
Banks estimate that real estate values are somewhat artificially low and expect them to be turning a corner (probably) sooner than later. Unfortunately, this may not be soon enough to meet rising capital requirements against their assets shrinking property values. This has left banks forced into accepting mercenary ‘short sale’ offers for 75% to 50% cents on the dollar. (Many times, it’s less.)
We find realtors/investors now taking these and instantly reselling the same home for a 20% to 30% profit upon closing their short sale. Banks are being hammered at every step of today’s real estate process.
Solution
The RADHA system will finance most distressed properties for about 80% of the original value. This is done with 2 cash installments over 4 years.
The 1st Installment is for 20% of the properties original value. This loan is paid off over 4 years by the homeowner (or new buyer).
The monthly is now about 50% lower than the mortgage’s original payment. (Examples explained below.)
This 1st Installment is provided by our mortgage company. This gives the bank a 20% cash infusion against all their distressed properties. The bank uses this to pay-down another 20% of the property’s value. The total cost to the bank is just this 20%, but we now have 40% in write-downs.
In the 5th year, the bank receives the remaining 60% from our mortgage company. This provides the bank with 80% of the properties original.
Advantages
1. This provides above market price for property.
2. A large (20%) cash infusion against original value of all distressed properties.
3. New capital to write-down loan to present market value.
4. Mortgage payments will now be 20% below RENTAL market prices (for easy resale encase of default).
5. Property is now a performing asset instead of banking liability.
6. Resale in half decade when market is stronger & property has paid off 40% of mortgage.
RADHA is being used by Credit Unions in DC. We can set up an appointment between the bank & credit union should the bank be interested to talk with another financial institution using the program. I hope you find this helpful.
Raghu Giuffre
Examples
HOME OWNER (or New buyer)
$200,000 - Original mortgage (value)
$1,277 - Original monthly payment @ 6.5% interest.
$40,000 - 20% RADHA Loan (+ 8,000 tax credit + $2,000)
$730 - Monthly payment for 4 years @ 6.5% interest.
(Mortgage now 45% less then original)
$40,000 - Bank writes-off property w/$ from RADHA
(Sometimes write-off less or more depending market value)
$80,000 - Total paid & written off by 5th year.
$120,000 - Property refinanced by RADHA in 5th year
$893 - Monthly payment for 26 years @ 6.5% interest.
(35% less than original mortgage)
BANK
Bank has 100 distressed (or foreclosed) properties.
$200,000 each = total: $20 million in original mortgage value.
RADHA hands the bank $4 million as a down payment towards 100 properties.
The bank writes-off another $4 million with the money received from the RADHA Loan.
$8 million has now been paid off. Only $12 million remains of the original $20 million.
Properties now have 40% of their value paid off:
20% paid off by the homeowner (over 4 years) and
20% paid down by the bank (with the money just received from RADHA).
Some properties require less pay-down leaving banks to pocket the difference from this 20%. Other properties will need more which the bank can do in a half decade (upon selling the remaining loan to the mortgage company).
4 years later, bank receives the remaining $12 million for their properties.
The homeowner’s payments are 45% lower than the original mortgage during this 1st term and 35% lower in the 2nd term (once the market is stronger).
