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   ARTICLE   |   From Scotsman Guide Residential Edition   |   March 2008

The Lighter Side of Lending: Securitization Lessons

What you know about securitization can hurt you

This article appears exclusively at

Today's class is on how to securitize your own loans. It's time to eliminate fussy lenders and go right to the source of our capital -- investors with so much money sitting around that it's beginning to smell.

First, head to the nearest Securities and Exchange Commission office. It's the tall gray government building. The tall gray people there will guide you on the finer points of pooling your closed loans into acceptable packages.

Remember that according to federal rules, you must treat all loans alike. Bad loans must be mixed with good loans so all have a chance of failing.

In today's market, you'll need pool insurance. But mortgage insurers are getting tough. Most will only provide pool insurance if the entire pool goes delinquent at the same time. Limit your pools to three or four loans each, and tell the insurer you're willing to pay the premium in euros.

You now have a bunch of approved pools with mortgage insurance -- known as credit-enhanced loans. Investors like enhancements, so look for more guarantees. Good managers always ask, "If I guarantee anything, what is the most I'd have to pay?"

After considerable research, we've discovered that the answer most often is "the value of my car."

You can make your portfolio more attractive by offering to give your car to any investor who may lose money.

Your next stop is the investor's office on the top floor of the tallest building in town. It won't be easy to get an appointment, though. Studies have shown that the name of your company greatly affects whether an investor will even see you.

Image is everything, so you should change your company name from 10-Minute Blowout Mortgages to something that will resonate with the senior people you'll deal with. Consider Forest Lawn Mortgage -- "for those who would rather die than miss a payment."

Senior people are the thin people who work only in the carpeted area of an investor's office. They are tanned, they have gray hair and the keys to their luxury sedans dangle prominently on their Phi Beta Kappa watch chains.

They're not like you: They don't think the Open Market Committee is a bunch of people selling vegetables. They probably know somebody on the committee, so talk about marketing.

Explain that your company markets only two types of loans: prime AA loans and -- for borrowers who had wretched childhoods, have been foreclosed on, have bad credit, have a criminal past, have no money and have been jobless the past three years -- Federal Housing Administration loans.

If you are lucky enough to be asked to lunch in the executive dining room, the sale is almost closed. Remember: No tipping, and don't take notes on the back of a linen napkin.

Hosts often ask, "What's new?"

This is the perfect time to unveil your idea: appliance-equity loans. It should get the conversation going.

If you're asked what you think the market will do next, reply with confidence that you think it is perfectly positioned to go either way. If asked whether you can produce a good loan volume, casually mention that you offer borrowers free parking for the first half-hour.

Start now. There's no limit to what you can do with a laptop computer and somebody else's money.


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