Meet The Banker: Market Updates And Buying Criteria With Richard Mason

This is the no Closer show where you get the latest developments in distressed note investing and learn the secrets of how you can control millions of dollars worth of property for pennies on the dollar. Get educated and entertained by someone who has closed thousands of deals and lives to support you in achieving the same. Now here's your host CEO of We Close notes, Scott Carson. Good morning, good afternoon, good evening everybody. Hey, welcome to Note Night in America on Monday night. We are always honored to have you guys join us from all across the country. And we've got a very special guest here, friend for quite a few years now been trading, always touching base with this guy about annually, six months. Hey, what's going on? What are you doing in the business? Where do you see things going? So we've got a great conversation for you guys here who are joining us live or also watching the replay or listening to us on our nation network of investors across the country, everybody. So love to have you guys here. Like I said, if you're watching this live, let us know where you're at, what part of the country. We'll try to answer some questions as we get through that. But I wanted to bring up my slide here. We got a few things. You're obviously here to meet the banker and we've got, like I said, very special conversation tonight talking about where the market's going, what you're going to do, what we see things and opportunities. But before we dive into that, if this is your first time to Note Night in America, well welcome. We're glad to have you guys here. They are recorded so if you've got a bug out after 30 minutes or so, you can always catch the replays by going to we close note that'll take you directly to our YouTube channel. Make sure while you're there to hit the subscribe button. Feel free to comment on the video, comment on the replays. I answer those. We take questions from there. So always glad when you guys are there. But check out the podcast as well for Night in America. All these are up. We're episode 65 now in America, so listen there. Hey, feel free to leave a five star review and also give us a subscription there as well too. So as always you can check out all our videos and replays on our podcast@weclosenotes.com but I have to give a big shout out thank you to everybody for our big podcast our three to five times a week, the Note Closer show podcast. We exceeded for 25 million listeners on the radio network last month. I forgot to announce that it's been a crazy, crazy time, obviously. Over 600 episodes, over 625,000 downloads as of now on just the itunes podcast and anywhere else you listen to your podcast. So thank you. As always, you can go to note closureshowpodcast.com and check out any of the back or current episodes. So review and subscribe. But one of the big things I'm really excited about something that we're launching here in the next week or two, first part of June is when I got started years ago I was on the road traveling, going from city to city and meeting with so many investments, speaking and meeting with bankers and asset managers. We decided to redo that as well. So We've got a 40 city virtual tour kicking in here next month. So stay tuned for that as we'll be doing specific webinars on each of the top 40 markets we've identified. We'll have a website up and running here shortly with you guys at different times and the schedule for basically we'll be hitting 40 cities over roughly about 45 days virtually. So stay tuned for that. Good stuff there. But once again guys, we are honored to have you guys here. Join us tonight. You're here to meet the banker. And so we're honored to have our banking buddy here. Our special guest interview tonight. He is over 20 plus years in the mortgage market, not just as an originator and a mortgage broker, but also on the distressed side, special asset side. I originally met him when he was the portfolio manager at Verkal Fund Group. Bought some notes from him non performing. We've always trying to trade it back and forth. Resources for performing or people buying and selling as well too. He's the founder of Revolution Mortgage and along with being the founder of the Northern Star Mortgage Fund, he calls Irvine, California home and one of the first speakers at one of my note mastermind groups about five years ago. So Rich Mason joining us here tonight on Note Night in America. Man, what is going on?

Rich? Scott, it's so good to be with you here. Remotely a little different than coming to the Mastermind and speaking in person. But as you can see, this is the new reality, the home office. You know, I have a data tape up on my computer behind me that I've been pricing out this afternoon. And this is what life looks like now.

Yeah, exactly. Tommy Bahama shirts and basketball shirts is the new norm for us.

Exactly.

But you can't tell I put a collared shirt on tonight. I guess I got too dressy for you, huh? So Rich, why don't you share a little bit about kind of what your little bit background? I gave a brief a little bit of your history. So share a little bit about your background and why people want to listen to you tonight.

Yeah, no, it's good Scott. Just, you know, thanks for having me with you. It's great to connect with you as always and people involved with you and I have just the utmost regard for you and your training. So it's exciting to be with you. As far as I go, it's all mortgage banking and secondary marketing. I work for some of the big subprime lenders out of college and then I open my own subprime retail shop. Ran that for about 10 years regional and then after 2008 I got into secondary marketing distressed mortgages. Helped run the trade desk at the vertical publicly traded fund for quite a few years. That's where you and I met for the past four years. Been a little bit back in the origination business, but been primarily buying distressed loans of all kinds. So really have our finger on the market these days and it's definitely changed dramatically in the last 90, 120 days. But personally I think it's a really.

Good time to buy.

I think it's opportunities like this just don't come along that often where you have big downturns and if you're able to set aside your fear and your worries that the future is just gonna implode, there's probably some good buy opportunities out there right now if you're smart.

Yeah, I would agree to that too. We look back to how we and I'd love to ask him what your thought was on the market, say 1st of January. Cause I think when we first met and when everything hit The Fan in 2008, 9 and 10, especially in 2009, a lot of us that were trading were like, ah, this is gonna be like maybe a five year cycle. You know, we didn't think it would last a little bit as long as it did and went a lot longer. Yeah, the market kept going up and even as last year that you and I were talking about the markets, like it's just crazy. I don't think it can keep going, you know where it's headed. So thinking back to the first year before we hit Corona and social distancing and all that good stuff.

Yeah.

It's a crazy 90 day period. Now you said there's some great opportunity, so let's talk a little bit about that. Where these current opportunities being at right now and then we'll fast Forward to the second half of 2020. To the first of the year.

Well, I haven't been doing this particularly in the distressed mortgage market secondary marketing side for the past, I don't know, it's coming up on 10 years now. I guess A lot of our focus, my focus early on was scratch and dent and as that just got more and more competitive and the margins got more and more compressed, decided it was time to branch out. And so we did that. And so, you know, right before the downturn we had for the most part exited the scratch in that market completely due to just the competitive environment and we really branched out. So our favorite trade before this whole thing happened and I don't know that it's really changed much, but before this happened we were buying a lot of RPL mortgages, re performing mortgages, pretty wide box, you know, they could have made just two payments in the past 12 months or 12 out of 12 and we really don't care. I have to say our biggest two drivers are yield and equity and we can look past almost anything else if we have those two components and property type, I mean just, you know, we'll buy some really funky stuff as long as we have equity protection. And that's even more so in this market that I'm still looking for yield, still willing to take on risk and even a little bit more. So now I just have to have that equity comfort because no matter what happens, if you have enough room, people are always going to need houses to live in. Maybe the rents go down, maybe your payment streams go down, whatever, but you're still going to have a performing asset just maybe at a lower level for a while. So we buy performing conventional mortgages, we'll buy the kind of the orphaned loans that were non QM stuff that were meant for all these investors that stopped lending the last 90 days during the pandemic. Land contracts, seller financed loans, private money loans, just about anything. And as I said, our two primary criteria, just what is our yield going to be and do we feel safe that if things continue to deteriorate, which we don't necessarily think they will, I actually think things are going the other way. It may be a slow recovery, slower than I don't know if it's going to be the big swift V that people have talked about, but I think it's going to generally go up for quite a while. Some bumps in the road, maybe some ups and downs, but I don't think we're going to have a W. That's my personal opinion. And so we're excited to buy into this market and we're seeing quite a bit of stuff available and it seems like pricing has come down.

Yeah, let's dive into that. What kind of yields are you guys looking for? When you talk yield, maybe explain that a little bit to our listeners. So that you're not going to get. I guarantee you're probably going to get some invites on via LinkedIn and people are like, hey, you want to buy my notes? So let's, let's clarify that what you.

Ate, save you a little. Here's kind of my benchmark. So I always know. So I have friends who have run hard money or private money companies for decades, right? So I know that I can just pick up the phone, call one of these guys and have virtually zero risk because I know they're under any criteria, they're very safe, you know, low loan to values. And I can get 10% without lifting my finger, without him to do any work. I can just go on vacation. I don't have to work one hour a week. They manage the loans, they do everything. I literally just send them the money and I get a 10% return, I get a monthly check. So it has to be better than that for me, right? That's kind of my bottom line. And other people may have different investments that they like. So for me that's kind of where I start. So when I look at it, I look at my initial yield at my discounted yield, what am I getting on a cash flow basis? So I have my discounted yield, I have my cash flow that I'm getting, which could be higher than the discounted yield depending on the term of the loan, if it's shorter and then I have the discount amortized over time. I personally am usually pretty conservative because you just don't know how these loans are going to perform. I think that's probably everyone's little special sauce, if you want to call it that, is how long they think the average lifetime of this portfolio is going to be. Someone's got a 2% rate that's never going away. My personal opinion is that guy is going to pass that loan along to his kids, right? And everything else. If you have a super high LTV borrower, it's less likely and the only exit is a sale. What parts of the country are they living? I mean there's just literally unlimited factors that go into that analysis. So I usually try and be conservative and I look at an eight or a ten year period and divide up that capital gain and add that to My added that to my yield. If that gets me over 10, I'm interested. And then I got to look at the overall risk of the loan and maybe I have to bump my price up a little bit more based upon if it's in a, you know, a long time, a long term foreclosure state or if it's rural or you know, if it's had a really sketchy payment history or it's got a sub 500 FICO or you know, tons of different things. Right.

Yep.

That's kind of how we, you know, generically look at our pricing.

Right. There's a lot of factors that go into it. When you talk about an equity, wanting to have equity in your loans is that you're trying to be at least at 20, 30% equity or what's that? I'm sure the number changes. Obviously it's a higher interest rate with performance, probably a little bit less equity versus somebody with a low credit score.

Industry. Correct. Well, it's just all over the place. Let me just give you some examples. So I'll tell you, I paid, which everybody will think this is probably overpaying, but I paid in the 80s for a pool of land contract, smaller balance, not rural, not really. Kind of, you know, suburban, semi rural, kind of a mix. Right. So I'm paying upper 80s. The coupon was 11, which is fine, so I have a nice yield. But the kicker was these things, every single one of them was below 50% LTV. The average seasoning on these loans was close to 10 years and they were 20 year loans. Some of them were like at 20 and 30% loan to value. So basically I'm looking, I'm getting better than I can get with the hard money. I still got a 10 to 20% cap gain. I have a short. Those loans are going to be paid off in 10 years no matter what. So I'm getting at least a 2% bump, if not more so on something like that. It's really individualized the pricing. If I'm looking at sub performing loans, if something has a lower coupon, I'll buy. I think my minimum coupon is probably around 5%. It's not that I wouldn't buy below 5%, it's just that the discount is going to be so drastic to get to where I need to be. It's just unrealistic. I mean unless the seller is super desperate or something really wrong with the loan, people generally aren't selling in the 30s and 40s. Right. But so if it has above a 5% coupon. Then I can get to where I need to be. I'll still price up. I'll do trades, I'll buy loans that I'll bid 50s and 60s on some stuff and we'll get some deals done in that price range. Mid 60s, high 60s, low 70s. You know, I really look at. I'm not as concerned about things like FICO score and some of the more traditional metrics that people really. I'm really looking at it loan by loan. And we don't buy in such volume that I can't do that. I mean, I can really look at every loan, envision the borrower, what they're going through. I mean, you know, I could look at a loan, the guy's two years past due, but he made 11 payments in the past 12 months. Right. You know, things like that.

That makes a lot of sense there. You got somebody that wants to stay in a house. Obviously it went through some sort of financial hiccup, you know, layoff or medical or divorce. But that's the same thing I look at, hey, somebody's still two years behind, but they made 11 straight payments. That's kind of motivated. I'm willing to worry about the back payments, put on a forbearance agreement, put on a face by the loan and roll from there.

Right. Well, and you know what else is interesting? I don't know if I set about to do this, but a large. So we own currently about 250 loans that we're servicing and own outright. A lot of those are in the middle of the country. We have very few coastal loans and we have lower average loan amounts also. And I didn't really set about to do that. It's just kind of the way things happen. But now in retrospect, I can tell you I have had out of 250 loans, I've had two forbearance requests in the last 90 to 120 days. And those people are in touch every month. They say, could you give me one more month, I'll pay my escrow so that doesn't get behind. Just can you waive my interest in principal? It's amazing. I mean, I'm thinking some portfolios have a lot higher forbearance than that. Maybe I don't know what the numbers are. 10, 20%, 30% on some, I'm not sure. So that's been amazing. So really looking at your average loan amount, your locations, what you foresee in the future, I personally am not really excited about. I used to love the coast, the coast used to be a bonus and now they're a detriment. I actually down price for the coasts. And I can tell you something else that I realized during this downturn is I had a loan. I purchased it not that long ago, maybe six months ago. Perfect payment history, 750 FICO score low LTV. So no matter what, I'm protected. But that's a loan you would look at and think we're bulletproof. That thing is going to pay like clockwork. I'm never going to have to talk to that borrower one time. Right? During this downturn. Both have lost their jobs, right? Sweet. People want their in communication, but they went into forbear. They're one of the two loans that went into forbearance with us. So that's something else that I think this type of unusual downturn that we're in, it's not just kind of like a slow. The economy slowed down. It's a very unusual downturn that we're in. And it's even very different than the 2008 downturn which was financial crisis. And it was a loss of equity. And this is. But people were still working. The GDP didn't really go down. It was a totally different deal. This one you've had sudden loss of employment, sudden downturn in gdp. It's really a different animal. And it's just sometimes it's just the basics are so critical. You know, that equity position that you're in, what could be more important than that? Equity foundation. And some people, I know some models, they'll overlook that based upon other criteria or they'll weight it down based upon other criteria. And I really. That's always my number one focus. No matter what. I'll take less yield to have equity. But just the fact that that borrower went forbearance. When I looked at that loan in that portfolio, that was probably the one loan I said those people will never have a late payment. And they were one of the first to have a late payment. So it just tells you really this. It's a good time to analyze your buying criteria, I guess, and your underwriting criteria. It's a good time to analyze your portfolio right now and really what's happening. Because I also don't think that this. I do think we're going to come out of this, but I think we ventured into a new situation, you know, with some of the geopolitical stuff that's going on and the political stuff that's going on, the economic stuff, the employment, some of these changes are permanent. You know, you and I were talking before the call about, you know, it'd be a terrible time to be an investor in office. Right. And that's not going to go away when we come out of this. It's going to be a 10 year to get back to equilibrium in office. Right. So I think it's good to look and see what changes have happened that are permanent and how are those going to affect your portfolio and what you buy moving forward in your criteria.

Yeah, I couldn't agree more with you there. And you think about, I think, what was it? I read an article that Google there in Santa Clara has given every one of their employees a thousand dollar check to buy office furniture to work from home. You know, that should tell you something. Everybody, I mean, we've been virtual for five years. I mean, we still have an office we work with, but our team works remotely. But you look at others out there. I mean, I was just talking with the head of public relations for Buffer.com, you know, social media platform and their 12 employees worldwide have always worked remotely. So, you know, with Zoom being the new norm, you can do it whether it's in the office, in a closet, if you're, what is it, Supreme Court, if you're in the bathroom, you know, they think about all the stuff that you can do remotely. Now you've really got to pivot, make things happen. So those asset classes that have required, you know, the industrial, the office space, even the big box stores, we know they've always been hurting for a while now. I think you've got to find some flexibility if you're going to be diving into those asset classes to be able to pivot or create something else. Right now, on the, you mentioned non QM stuff. Would you share a little bit what you kind of consider non QM and what kind of comes across your plate? Because I've been seeing a lot of stuff today and you and I need to talk tomorrow because I just had an interesting email with a non QM guy. But, but share a little what you're looking at on the non QM side.

Well, it's been interesting. I'll tell you. We haven't bought a lot of it. And talking to people who are out there, not a lot of it is trading. I mean, the feedback, the intel I get is somebody will go to market with 100 loans and they trade 10 of them. And that has 100% to do with the price expectations and what the market's willing to pay. There just has not been an equilibrium formed in that it was just so sudden. I mean to have all these loans. I mean it was just like the subprime meltdown. I mean you have 30 funded loans, you plan on shipping the new century and get the email saying, hey, we're not buying anymore. And every other lender you go to, they're not buying anymore either. So I think it was very sudden and that's why there hasn't been price equilibrium. But for me the non QM stuff is just anything that can't go conventional or jumbo conventional, just anything that has irregular income, even the larger loan amounts. So anything over the 680 is almost non QM. Now some of the jumbos coming back from what I see. But still that's primarily what we saw was income related and loan size related to a little bit of credit score stuff. But that's the non QM space. And we've bidded, we haven't really been bidding a lot of it recently. Like I said, we just got so little traction. When the feedback is you're 25 points off, there's not much to do there. And when you keep getting that feedback and you keep hearing the loans, you start trading. So I think there needs to be a narrowing there for that trade to happen.

Yeah, I think there's definitely a divide between those that have it and then the buyers. A lot of knee jerk reaction, oh, we're going to offer pennies on the dollar. Well, we know we've got to bring it up to something that makes sense. You know, 40, 50, 60 cents, that's protected with the yield and then also the equity position and figuring out that there's going to be a drop in some value. But then also the guys that have this stuff, they don't want to take a bloodbath for it that you got to really kind of really spend the time finding the right buyer for the right products. And as you mentioned, finding the right product for your portfolio, not everything makes sense.

Well, the feedback I got on that was, you know, that stuff they're looking for low 90s, maybe high 80s and you know, the coupons aren't really that great on those loans. I mean you might get into the fives and sixes, some of them are 5, 6, 7, 8, but a lot of them aren't. And so it just hasn't happened. And the thing is, you know, to, you know, where are those loans that those guys have to sell them like so are they sitting on a warehouse line that they're getting called on and they don't have the financial capability of taking it off the line, then they're in a desperate situation. My feeling is there's just not that much desperation on the non QM side. Those guys who were running those funds in those companies had that fair amount of capital going in and maybe they're okay just holding on to those loans for a while. Yeah.

And I think there are a lot of them are hoping and who knows what's going to happen. And I'd love to get your insight on this. Hoping that the government's going to come and bail out a bunch of people though too. On the mortgage side, what's your thoughts on that?

You know, I don't know. I haven't heard anything. I personally haven't heard anything about that happening. It doesn't, you know, I guess the only thing they would, they would. I think the government's more inclined to go down to the individual level right now is kind of their focus. And it's not like the banks really need to be bailed out. I mean the big banks, I mean it's the other companies, the banks seem to be doing fine, they're well capitalized. I mean, I'm sure they'll take the money and I'm sure they're giving them some for the forbearances. But a forbearance isn't really a loss, you know, it affects the cash flow and the bond payment and all of that. But if there's liquidity there, you're just tacking on six payments to the back of the loan or even three payments. That's why I don't even really mind doing a forbearance. Once again, if you're in a good equity position and you can help somebody out, you know, some blue collar guy in Ohio who's living on three or four grand a month or whatever it may be and I can go, great, you know, we'll just tax six payments on the back of your loan, no problem, we're fine. And it helps them and we still get paid in full eventually. So it's not a loss to us and we help somebody out. I, you know, I don't know why. As long as you're in the position to be able to do that, it seems like a no brainer.

I agree to that too. That's one of the things I told my staff is like, let's get a phone call for a forbearance agreement. Let's just go ahead and give them 60 days, we'll extend it and go from there, see if they're working. You know, I do have a friend who's got a fund that he had six borrowers call and ask for forbearance agreements. And he did a little research and found that all six of the six of the households were working full, full time too. So you have some people trying to take advantage of the situation.

Yeah, well, and it's interesting. I'll tell you some other strategies that we're implementing right now. I like the size that we buy at, you know, we're bidding on stuff at 10 million below in UPB and we'll buy a single loan. So anywhere in that range. Right. But it's just amazing that if you're diligent and you're willing to look at a lot of stuff and do the pricing, keep the relationships going, you will find the loans you want to buy. I'll give you an example of how you can do. Well, right now, I just bought a loan, literally just bought it, and within the last year, six months, got a nice discount on it, paying borrower, few funky things about it. But good credit score and good equity. Right. And good payment history. So I borrowed the loan and I called the guy up and I'm like, hey, we're your new servicer. La la la. Looks like you have a good credit score. Appears you have enough equity. Have you ever thought about consolidating because you had multiple mortgages, have you ever thought about consolidating Hispanic borrower, multiple people in the house working. Probably a tricky loan, but it looks like it's gonna get done. Right. And so we'll take our, you know, we paid probably 70 cents or something for that loan. You know, we'll pick, we'll clip, you know, 50, 80, $100,000 capital gain in 60, 90 days if that loan funds. Now that's just one loan out of a whole portfolio. They're not all doing that. But still being to that on one loan and then something else on another loan and you're, you know, you can really accelerate your returns is what I'm saying, if you're loan specific and if you're, you're multifaceted, you know, another strategy that we've developed is on land contracts. You know, we have found that a lot of the land contract borrowers would prefer to have regular mortgages because they know their entire equity is at risk. Right.

I was just going to ask you that.

And so to me, once again, if you're in a good equity position, does it really make a difference for me from a security position out of a land contract versus a more. And a note, not at all. Right. So I gotta. I may have to spend some more money kicking them out, but I'm gonna get it all back because there's plenty of equity. So once again, it's just as long as you have capital liquidity to do these things, you're well positioned. And so we'll go offer people with land contracts the opportunity to refinance into a mortgage. They love it. It's very low. Doesn't cost a lot of money to do that. From a servicing perspective, we'll shorten their term, right? So it bumps up their payment, shortens their term. So we get our capital back more quickly. We buy a discount, so that boosts our yields. They love it because they now have a mortgage loan. They don't feel like this, you know, hammers over their head that they could lose everything if they somehow stopped paying. And they actually own their home more quickly. So as long as they can afford the payment, that's even a benefit to them as well. So it's once again just being creative and really trying to maximize your portfolio and thinking about these strategies when you're buying. I think another thing that's really important, Scott, as we're bidding portfolios, if you don't get into due diligence, you don't have a chance to buy the loans. I think about that. I am not overly picky when I'm bidding. I try and err on the side of caution. I can say, oh, this could be a problem, but it might not be a problem. It's unknown. Right. So, you know, why put the cart before the horse? I give my best realistic pricing upfront, and then I get into it. And I know that if I've got a good counterparty, I want to buy loans at a fair price. They want to sell loans at a fair price. You got to get into due diligence to have a chance. So they get into due diligence. Well, then you can have a conversation. You can say, you know, this, I priced up front. But now look, we have this, this and this. This is what we think is fair. And you get it done. Where if you price that way up front, you never even get to have that conversation. And they don't get to sell a loan and we don't get to buy a loan. So I really, you know, I've just developed that over the years where I'm not. I don't want to be too loose where you create false expectations, because that doesn't work right and then you just, you know, you get a bad reputation as a bidder and you definitely don't want that as someone who has a low pull through. You don't want that and not being so worst case scenario and everything that. Because when you're selling loans, you have very little fear because you know every fact about that loan. Right? So when you're selling loans, it's a whole different thing. Like you're so comfortable because it's your portfolio, you've talked to the people, you've owned them for years, you know what the deal is inside and out. But when you're buying and you don't have that comfort level yet, you can have a lot more fear. And that can result in kind of low balling the pricing. So you have to just kind of keep it a little bit, you know, have some faith in the process and not be quite so tight up front.

Well, that's a big fear we see from people that they will judge based on every worst case scenario on their ROI calculator. And I'm like, kick the ROI calculator out until you get a true bid back or get deals accepted. Because we all know we could kill every deal with every possible worst situation out there if you take the common sense out of it and you just go to the worst side. You're right. Getting the bids and getting into due diligence, even if you've got the bid a little bit higher than expected. But then as you dive into it. But sellers will fade bids if they understanding things. The value is not there on this one. There's some troubled children here. Okay, we'll fade it down and make a deal happen versus okay, let's start to try to retrade the whole damn thing over another 90, 120 days, right?

Well, yeah, and sometimes I'll get into it and I'll be like, well, I'm really kind of paying up for this one. I kind of peaked my bid on this one. And then we'll get our BPO back and it comes in 50 grand higher. Now my LTV is 20 points lower. I'm like, oh, this is fantastic. No problem.

Exactly. She's got to get that do that journey versus killing the deal on the front end. Now, how much are you guys following up with bids that maybe you didn't succeed on and then following up every 30, 60 days. Are you seeing some pull through and closings from that and just being diligent in your touching base with your sellers?

Yeah, that's good, Scott. We're probably not the best at that. That's a good strategy. We are not having an issue to date deploying our available capital, so we haven't really had to do that. But you know, we have a marketing program. We send out emails once a month to our data databases we've developed over the last 10 years. You know, that seems to work. We, you know what I do when I have money sitting around that's not deployed, I just pick up the phone, I've called you in the last month or two, said, hey, we have money to put to work. You know, your people have some reforming loans that they want to sell, some MPLs that they've turned around and that's what I do. And I just start at the top of the list with people I've done the most business with and I just work my way down because there's so much in this business to be said for that relationship. That first trade is absolutely the hardest. And you know, you don't really have that trust level completely and so you're having to double check everything and people are seeing if you have an alternative motive until you get that first trade done and you go, okay, great, you're above board, I'm above board, this is great, let's do more business. Definitely the first calls I make are the people that I've done business with.

Yeah, I agree there. Jeff Wolf from out in San Diego asked the question, what's the percentage of winning bids? Do you end up fading if you have any idea?

The answer to that question is it's 100% related to the quality of the data tape, 100% related to the accuracy of the data tape. I do like bidding, you know, so you get like, you know, the mountain views of the world or Citus now. But you know, in other intermediaries like that, the thing I love about that is they have a whole department dedicated to putting that data tape together. And not only is it accurate, but it's like 100 columns wide. There's more information than I would ever use. Right. But everything that I would want is on there. And it's amazing how many data tapes that I get that either are missing. Stuff that I think is important now. Can I price without it? Absolutely. But the accuracy of my pricing is going to go down. You know, you tell me they're current, but can I see what they've done? Give me a 12 month payment history so I can actually see what they've done. You tell me the interest rate, but what's the P and I payment so I can make some additional calculations. You could just go on and on forever, the more detailed the information gets. So I have found that when the information is extremely detailed and extremely accurate, meaning my BPOs come back, you know, they're within tolerance. The credit reports get pulled and what they said is what's actually on the credit report. I review the payment histories and the payment history is actually what the data tape said. The rates match up, there's no other red flags on title that pop up. Then we'll buy 100%. I mean, there's really no reason not to buy every loan on there. And we will. And sometimes it's the opposite of that. You know, we have tapes, you know, we'll get a due diligence and the BBOs will come back and they'll just be like, just really low, you know. Yeah. And yet, I mean, I've had trades where we've like seriously kicked 80 or 90% of the loans. We've come back, said we'll buy two out of these 20. They're just, you know, they're trash. And then of course the seller's upset and we're like, well, don't worry because we'll never bid anything from you. So you don't have to worry about us buying from you because you just wasted our time. Because this is, is ridiculous. But it's usually not like that. People usually don't intentionally mislead. And you know, I think when you get, you know, I always ask for stuff too. I get a data tape, I'll give it an initial review and I'll just say, hey, you know, are FICO scores available? Are updated values available? Are 12 month pay history is available. I mean, these are the things that are critical to us in pricing loans. And if they are great, and if they aren't, we say great, we're going to price it as is, but we're just going to make estimates. You know, we're just gonna throw in an estimated average credit score and we'll just assume that everybody's made their last 12 payments on time and we'll go from there. The thing that's almost impossible is if you don't have values, if the seller doesn't provide an updated value, that's really hard because, you know, am I gonna take the time to go in and look up Zillow's all these and then you have no idea. You know, Zillow's off by 30% sometimes. Right, exactly. Especially in smaller areas and it's even more inaccurate. So if there's not values. That's probably the one thing that we just absolutely will not bid if it's a no value tape.

Do you have a size of the city that you're buying loans in that you like to stay above as far as like population wise or you know.

We don't really city population, we just look at it as more like rural, semi rural. You know, we've, you know, we'll buy loans in the middle of nowhere. Once again it's really just yield and equity driven. You know, if there's a 9 or 10% coupon and I can pick that loan up at 40 cents on the dollar, but it's a full blown agricultural property with a house, you know, five miles out of town and the town is a thousand people, but it's got a good pay history. I'd buy that loan.

You just, you wouldn't move there. Your wife would move there, huh?

Right. Not gonna go be owner occupants if we take it back. But you know, those people tend to stay in those properties a long time. So if they can pay, they will. And even that property. So if you do have to take it back, I mean at 40 cents on a dollar, you're at least going to recoup your initial investment. You may lose your capital gain maybe, but you're going to get your money back at least.

Capitalization. How are you guys capitalizing? Are you using your guys own funds?

We are. It's funny you mentioned the. Yeah, we've never really taken on investor capital. Yeah, it just hasn't been our cup of tea. If we needed to, we would. It's interesting you brought up the government. I've actually been thinking about pursuing that because we did get some. It's amazing. The federal government will literally just wire you money right now. It's, you know, literally they'll just send you an email, hey, you're approved for this. Sign this and a day or two later there's, you know, six figures in your bank account. It's hysterical. But I guess when you're doling out, you know, hundreds of billions or trillions, you know, what do they care, right? But it is pretty loose. But this time around, I don't know if the government is really putting much money into the real estate and mortgage arena because there's so many other places that are just really hurting, right? Just people who can't pay their mortgages, getting direct payments or can't pay their rent, people out of work and you know, increased, you know, unemployment and then all the industries, you know, the travel and Restaurant, just all those. I mean, they need so much money. But I have thought about, I don't know how much I want to like be in bed with the government particularly. I really need to think that part through. But you know, to say to the government, hey, we will provide liquidity. I mean, it's exactly the same thing they did in 2008. It's really. They're just not doing it because they're doing all the other stuff. So to say, hey, look, we'll buy these loans that are in forbearance so those banks can make new loans, right? We'll buy loans that, you know, that are trade discounts because the borrowers are past due or just, you know, all the myriad of stuff that's going on, just provide liquidity at all levels of the spectrum. Just makes more money available for new loans or to give people more time to get, to get, you know, back on their feet. You know, we might do that, take some low interest rate government money and redeploy it.

When you guys were at vertical, when you were at vertical, you guys had a pretty interesting way of raising capital. Going the broker, dealer desk wise, is turning your shares into mutual funds, if I remember correctly.

Yeah, it was, yeah, it was very unique. I think that was the only mutual fund in the mortgage loan space. It could still be, I don't know. But it was interesting running the trade desk as a consultant for those guys and seeing the capital raising, that was a very institutional capital raise. And just still to see the amount of time and effort and costs. Oversight, Right. And it goes into that. And every investor is somebody's hand you have to hold, right? So if I could just get one guy, you know, hey, I'll write you a check for 50 million or give you a credit line and it's me and you, and that would be one thing. But if you like have 500 individual investors and you know, they're all uncredited, but still, you know, even if they're worth a few million bucks, they're probably, you know, some of them are going to be more worried about their investment than others. I mean, it could be a bigger deal to some than others and fluctuations and explanations. So we haven't gone there.

But if you were, I got a question from somebody on your. Terry. Terry, that's a question. He goes, if you're just, if you were just getting started as a note buyer, note investor, where would you go first to find notes to bid on?

I'll tell you what I did, and I think this is when I got into the space. It was 100% networking. I mean, I literally just started going on LinkedIn and it's easier now because there's just so many, it's much, there's so many trading groups and note buyers. I mean there's huge groups. But that's what I did. I mean, I started a few of those groups and this was like 10 years ago and literally just started networking, Getting people on LinkedIn to connect with me. And then I would access their email and I had a whole process in place. Then I got their email, then I had my first email I sent to them, you know, and then had wanting to get a call and then I would just go to the conferences and when I didn't know anybody, I would literally just. I never went into any of the presentations. Literally to this day, I mean, however many dozens of conferences that I went to over the years, I seriously, I never went into the presentations. I may be like one or two, you know, out of, you know, 30 conferences, I went, sat through a couple of presentations. I would just take a whole stack of my business cards and I would stand right outside the big doors where everyone's gonna come out after the presentation. And I had like a 22nd spiel, you know, Rich Mason, Northern Star Mortgage Fund. We buy discounted mortgage loans. What do you do? And if they said anything that wasn't related to that, I would say, have a great conference, my name's Rich Mason. And I would just, you know what I'm saying? And I could seriously, I could meet probably a hundred people in an hour. And then you spend maybe two or three minutes with the people who are engaged. Just have a pen, just write down. This is what they do. They buy NPLs, they sell RPLs, they're just whatever the bitcoin is, write it on the back of their business card, stick it in my pocket. Great, I'm gonna follow up, you're the next person. And then just walk around in the meet and greet area the whole time, just, hey, what do you do? What do you do? What do you do? And find the people that are doing it. And then, you know, when you don't have a lot of capital, you know it's okay because you can get in there and you can bid something, you can bid a smaller pool. Say you only have a few hundred thousand bucks or whatever it is, you can still go and bid a 2,3 million dollar pool loan. Level it out. And then just when you hand it in to the seller, whoever it is, say, look, I'm looking to deploy $300,000. So if you want to cherry pick one or two of my bids, I'd be happy to do it. Or this other strategy still works. I was talking to a guy and telling him, I, you know, love your RPL bid first and seconds. And he's all, oh, well, you know, I actually have a pool of RPL seconds right now. I'm on beautiful home run. He goes, it's about $70 million in RPL seconds. I'm all, that's a little big for us. You know, we're not even gonna take a sizable carb of that, right? I mean, that's just to scale, right? But I said to him, but we love that stuff. We'll buy a few million. So if you have a tail or you know there's gonna be kicks, right? Hopefully they'll probably sell that institutional, but, you know, they're easily gonna have 5 million in kicks or just whatever stuff that just doesn't trade through. We'll buy all that, send that to us. So strategies like that. But the number one thing is just networking and getting out there and just meeting people and following up with people. It's amazing what you were talking about, following up with the sellers. It's just amazing. Not even to be motivated to follow up, because you can be. It's just hard to follow up with a lot of people. You have to have an organized system. You can do the emails, but how many actual, like really where you really know the person and you've done business with them, how many of those relationships can you actively manage? Like 20, right? I mean, that's a lot of people to stay up with all the time because they might be a seller once a year or twice a year or four times a year. So if you're not talking to them or connecting with them every month on a meaningful level, that's why I think the broker community is also very valuable. People will say, well, do you mind? What if. But what if you buy from a broker and it's somebody you already have bought from in the past or somebody you know, I'm like, no problem. I am so happy for that guy to make his point. Or two, because there's no way I can manage all these relationships. I mean, I have did stuff where I bought something from somebody literally just months earlier and they didn't send me the data tape because they can only deal with whoever was most recent in mind. That's who generally gets it right? And especially if you're dealing in multiple arenas, like, you know, like, if all you buy is scratching den, that's it. And that's all you do and everybody knows it. Okay, that's a little bit easier to manage because it's 100% scratch and den. And even though you can break that down into geographies and loan amounts and blah blah blah and, and issues, kick reason, whatever, it's still that. But for us, I mean we'll buy the land contract, we'll buy the rpo, we'll buy the first and second, we'll buy the small balance in the rural, we'll buy the bigger loan in the city, we'll buy the seller finance loan, we'll buy the funky. It's hard to stay in touch with so many different people with so many different products. So it's great to really engage with the broker community and keep those relationships strong because they will bring you a lot of stuff and very important.

Yeah, I agree totally with it. It's hard to be touch base with everybody on your list. We gotta have an email system and I was, I was looking through here and I probably have probably got 40 emails from you where I know it's like hey, you go to conference, let's meet, let's grab a drink, you know, and I'm not, oh, I'll see you there or whatever. But that's just, that's, that's just touching base with people. At least the conversations. If you're not marketing to people or building a list of some sort of, you know, you're not really in the business but you build those relationships. You have those 20, 30 sources that probably feed you on a semi regular basis and you probably got a hundred that are going to do like once a year or once every other year. You still touch base with those through marketing but you still, you build your core. But do exactly like you said. Jeff Wolf, sit on here Terminator networking with you at an event with the cards. But hey, go hang out at the local bar in the hotel nearest the event and save on the fee of the tickets.

Right, right. Hey, don't say it. But yeah, you know, just go sit, just go and sit in the bar. In New York at the, you know, at the secondary conference, you know, you don't need to go up or down any floors, just hang out in the bar. I mean literally the way I used to schedule it, I would do every meeting 30 minutes and just do like one break for lunch. And literally so you think about if you start at 8 in the morning and you're willing to go to like six at night, that's. You have 20 slots, 30 minute slots. Right. Take a little break. You can meet with 18 people. Yeah, right. I mean, we literally used to grab the same table year after year after year in New York. People would like, oh, you got your table. We're like, here we are. You know, once you start doing that and then people are coming by and you see people and here's my card. Here's your card. The same two minute spiel, what do you do? Great. If they do, if they are a potential seller to you, and even if they say like, we don't sell but they own loans, you want to connect with that person. Right. Because they will be a seller eventually. Even if vertical, we weren't a seller. But, you know, we eventually started selling stuff, you know, you just don't know.

Yeah, I made some great money off the three, the first three notes I bought from you. It was phenomenal.

Nice.

Yeah, it was a win win.

Yeah.

What's the best one? Question for me, are you still buying seconds right now in this market?

Absolutely. So I love the second trade. I absolutely love seconds. I do not really differentiate that much between a person a second. And some people think it's just such a big difference. And I just. If you just combine them together and then underwrite it like one big balance, there's really no difference. You don't have to deal with taxes and insurance from the second position. There's a lot of stuff that you don't have to deal with from the second position. That's nice. And once again, if you're in a good equity position, I don't mind. I've had first foreclose and I got to sit around waiting for it to go to foreclosure, wait around for the city to get their act together. But two or three months later, check shows up in the mail for my full balance. Thank you. No problem. But I love segments. I was gonna tell you just in this specific market, I am actually, not only am I like a buyer in this market, I am ecstatic to buy in this market. Like, you know, Warren Buffett and all those guys like him sit around waiting for the stock market to tank. That's when they buy. They are, you know, they do little buys all the time. But that's primarily when they're storing up $100 billion. They're waiting for that once in a 10 year downturn where they can go in and buy quality companies at discounted prices. You know, Warren, you guys probably heard it, but you know, Warren Buffett says, you know, when everybody else is in fear, that's when you're, when you want to buy, right. And when everybody else is in a frenzy, that's when you want to sell or stay neutral. So I love that this has happened. I love that there's continued, you know, I don't want to call it fear, but just a lot of uncertainty and it's continued, it looks good for a while, then you know, something happens and people get concerned again. And I think it's an absolutely great time to buy. I am, you know, slightly more cautious because I think in the long, you know, the 5, 10, 15, 20 year horizon, it's all good, just all goes back up on the long term trend. But there could be slower payment streams over the next 12, 24, 36 months, you know, unexpected things could happen. So once again I want to keep dry powder because I want to be able to ride out the storm, whatever that is. And maybe I'm slightly more cautious on as far as my bid, it might be a little bit lower, right? For sure. Because prices have definitely come down. So my bid is lower than it was 90 days ago. But you know, so I might come back a few points or whatever just because, you know, it is a little uncertain. But I think it's a great time to buy. I want to deploy all my money right now.

Amen to that. Amen. When there's blood in the water, it's the time to strike. Not waiting around for it and waiting.

For the well, like you said, a win win situation. It's one of the reasons I love the RPL buy. What is a better win win situation? You got somebody who went out and paid $0.03 or $0.10 or $0.20 or $0.30 for an NPL loan, depending upon which kind and whatever, equity or not. And then they work and work and work and then they get the thing turned around and the guy makes, you know, some amount of payments over a 12 month period of time. 6, 7, 8, 10, 12 payments and they can turn around and they can sell that loan and double their money, triple their money, and they can still afford to sell it to me where I can make a good amount of money still, but I'm not gonna have to nearly amount of work they did maybe a little, you know, there's still some borrower communication, but not like they did. So they're getting paid for their work. I'm still getting an above average yield. Right. And I'm comfortable with all the background noise. I love that bias. It's a win win for everybody.

Yeah, exactly. What's the best way for people that have got something to write it across your desk to see if it's something you might be interested? Rich, because I got people here right now. How do we get a hold of Rich to send us the stuff we got?

Yeah. Yeah. Well, Northern Star Mortgage is our website. Northern Star Mortgage spelled out my email is my first initial R, last name Mason M A S O N @northern star mortgage.com and or just call me or text me on the cell. 714-273-8547 we have money to put to work and would love to do a trade with you. Awesome.

Or you guys email me. We'll make sure to forward it on over to Rich as well. Rich, man, thanks as always, man for coming on. Always great catching up with you. Connecting. We'll be in touch some more as well too. You be safe out there and in the craziness of Irvine.

It's crazy here, you know Irvine.

Crazy everywhere, brother. Good stuff, man. Enjoy your evening. Thanks so much for joining us on here, Rich. Appreciate it.

Thank you, Scott. God bless you too, man.

Be safe. All right, guys, that's going to wrap it up for Night in America tonight. Thank you again for joining in. Hopefully it was valuable for you guys out there listening. Your favorite Tamika says how many people said you favor Mark Cuban? Oh, you favor Mark Cuban. You look a little bit like Marky Mark there. Good stuff. Just drop me an email, guys. We'll make sure we're glad to share his contact information. Just drop me an email directly@scottclosenotes.com but otherwise, guys, have a great evening. Be safe and we'll see you all later.