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The Venture

Distressed Capital Management (“DCM”), a California based group of mortgage foreclosure lawyers and distressed mortgage asset managers, and Residential Mortgage Solution (“RMS”), a California based credit risk manager and technology platform, together launched a joint venture to take advantage of investment opportunities in distressed home loans securing Central and Eastern European (“CEE”) properties and have deemed the venture to be called Resolution Capital Management (RCM). DCM and RMS currently, and successfully, co-manage significant asset portfolios of U.S. based distressed mortgages formerly owned by the Royal Bank of Scotland. Both DCM and RMS are actively engaged in all aspects of the U.S distressed residential mortgage market and together co-bid highly competitive asset auctions held by FNMA, Freddie Mac, HUD and domestic money center banks. The firms have strong relationships with the major investment house participating in the U.S domestic distressed asset space. DCM and RMS routinely work with all the major investment houses.

The Market

Over the past four years increased competition has caused yields to fall into the low double digits and high single digits in the U.S. distressed residential mortgage market and whole loan sale pricing. Intense competition and low-risk adjusted yields in the US distressed market allowed DCM and RMS to seek distressed loan opportunities in the CEE markets. While initially focused on European darlings Spain and Italy, market analysis led to a more attractive economic and legal environment for residential distressed asset investment in CEE – specifically Poland and Romania. With double digit unlevered yields, sophisticated securitization markets, and a favorable legal and political environment, both DCM and RMS’ investors, collectively “The Investors” expressed significant interest in pursuing “Live” residential distressed transactions in CEE.  Successful diligence on the initial pool from Getin coupled with successful CEE site visits and legal recruiting in Poland led DCM and RMS to formerly pursue a joint venture in the CEE under the flag of Resolution Capital Management “RCM-US, LLC” or RCM.

Strategic Partners

Distressed Capital Management, LLC (“DCM”) was established June 2012 and is located in Irvine CA. DCM is an asset manager focused on the valuation, acquisition, and liquidation – via REO sale or whole loan sale – of residential non-performing loans (NPLs). Investor returns are normally derived by purchasing NPLs at a discount, converting to REO and liquidating at a profit net of costs. If desirable leverage is utilized. DCM typically offers its services as a fee-based manager but will consider equity stakes in lieu of some portion of fees depending on the transaction. DCM communicates deal performance closely with its stakeholders via monthly management reports. Strategic deal decisions – such as a material loan sales or servicer change – are usually decided with the client’s approval via formal investment committee.

DCM assets under management are distributed nationwide in the U.S (i.e., with significant concentration in the Northeast in general and in judicial foreclosure states in particular – see table 2). DCM is currently staffed by a managing director and four managers that are primarily responsible for the areas of:

  1. Asset evaluation and diligence; and
  2. Asset management and disposition planning; and
  3. Whole loan acquisitions and sales; and
  4. Financial analysis and servicer management; and
  5. Foreign market development.

BP Fisher Law Group, an affiliate of DCM reviews and manages all loan foreclosure activities and all loan modifications for assets under management. All of DCM managers have extensive and successful experience in asset management, capital markets and finance, and investor reporting. Loan payment processing, accounting, taxes, real estate management and sales functions are provided by licensed third party loan servicers specializing in NPLs and REO sales. DCM closely monitors and manages servicer performance and when and where necessary affects loan servicing transfers, either for performance or strategic considerations or both.

For new NPL supply, DCM participates with institutional sellers; FHA/HUD, FNMA, Freddie, Banks, and Hedge Funds. DCM is an approved bidder with HUD, Citi, Wells Fargo and currently co-bids on agency NPL pools with its investment partners. Collectively quarterly residential NPL offerings have been averaging approximately $500MM to $1B with pricing ranging from high 60’s to low and mid 70s as a percent of current BPO. Pool NPL valuations are done at the loan level and include but are not limited to; loan-to-value, loan size, property location, property condition, property marketability, servicing history and notes, payment history, unpaid taxes and Insurance, borrower capacity to pay, bankruptcy, foreclosure status and state law. Leverage is usually considered and readily available both short and on a long-term basis.

Founded in 2003 as a specialty finance company, Residential Mortgage Solution (hereafter “RMS”) has acquired more than $1.3 billion UPB of troubled residential mortgage assets, including both first and second lien mortgages and REO properties and co-manages over $49 Billion in assets.

In an effort to improve its own portfolio performance, RMS, and its affiliate RAM, engineered a highly effective servicer surveillance and oversight solution powered by a revolutionary web-based search and analysis engine called Mortgage Market Management (“M3”). This combination of talent and technology was developed specifically for asset level surveillance of sub and non-performing residential mortgage loans and REO Asset Management. RMS’ loan servicer surveillance process and its REO Asset Management have resulted in reduced loss severity results for its owned portfolio that are almost 50% better than the subprime ABX index (30% for RMS vs. 55% for ABX).

RMS now offers its proprietary servicer surveillance and oversight solution to mortgage institutions whose servicing operations and 3rd party servicers may benefit from a higher degree of surveillance, oversight and proactivity. RMS’ experienced advisors and innovative technology deliver value-added loan servicer surveillance and REO Asset Management. RMS monitors and manages all aspects of the loss mitigation, foreclosure, bankruptcy and REO liquidation process with loan-level monitoring and decisioning utilizing a “Servicing Arbitrage” approach to mitigate loss and maximize returns on investment.

M3 provides a robust data warehouse platform utilizing loan-level servicer data which automates the process of identifying loans or REOs that have collection, loss mitigation or disposition issues, allowing for timely, effective and meaningful resolution. Not only does M3 track and warehouse all relevant data, it anticipates the data needed for any given specific task and presents the key information required for accelerated decision making. M3 automates the entire process through a single, transparent, on-command data system. This cost effective solution creates substantial savings and reduces loss severity on non-paying loans by 5-15%. It is simply the industry’s most versatile and comprehensive solution for managing residential real estate loans and REO properties.

Core Competencies

Asset Valuation

RCM’s asset managers are highly proficient in synthesizing and analyzing the pertinent information which will determine the financial potential of each loan within a pool.  This detailed approach includes reviewing collateral, property values, location, condition, marketability, occupancy status, unpaid taxes and insurance, loan-to-value, loan size, payment and servicing history, borrower capacity to pay, bankruptcy and foreclosure status, as well as the federal, state and local laws which impact the timing and ability to foreclose.

Capital Market Expertise

RCM’s management brings experience and expertise in capital markets which provides the ability to determine and execute advantageous asset purchases, sales and strategic financial strategies.  RCM participates with institutional sellers to obtain pools of Non-Performing Loans (NPL’s) and is able to leverage extensive capital market experience to structure advantageous investment vehicles.  This includes FHA/HUD, Fannie Mae, Freddie Mac, Banks and Hedge Funds.  RCM is also an approved bidder with HUD, Citibank, Wells Fargo and co-bids on agency NPL pools with its investment partners.

Timeline Management

RCM’s partnership with its sister company, Distressed Capital Management, LLC and BP Fisher Law Group, LLP (Previously BP Law Group, LLP & The Fisher Law Group, PLLC) has enabled a streamlined and efficient process to move assets through the foreclosure process in the United States since 2012.  By applying the strategies developed within this cohesive team of veterans, RCM is poised to unlock the maximum value from the comprable European markets.    Each file is reviewed weekly by a dedicated asset manager, with any delays in file movement or significant status changes relative to strategic plan assessed with appropriate senior managers.  Timelines and valuations are re-evaluated and re-cast regularly to ensure investment milestones are achieved.

Servicer Management

RCM monitors each loan servicers’ performance to ensure that their actions support investor requirements, and works with servicers to take corrective actions when standards are not met.  Each servicer’s loan portfolio performance is evaluated for timeline adherence, file movements, operating costs, property rehabilitation activity, and REO time on the market and sale proceed performance.  Servicer performance reports are produced and reviewed on a monthly basis.  If it is discovered that a servicer is impeding the overall investment strategy, RCM will take a hands on approach to resolve any underlying issues.

Affiliate Partners

EOS – Servicer

EOS was established as a brand in 2000. A group of specialized companies was created – with the aim of bundling its many years of experience and in-depth market expertise for the benefit of the client in the field of collection and risk information. The EOS Group, with 50 companies operating in over 25 countries, is among the leading international service providers in receivables management. The success of this company is based on its combination of expertise in local markets and its wider, international focus. The EOS Group is managed from its headquarters in Hamburg. Its core business is receivables management. In addition, EOS also operates in the fields of liquidity management and information management.

Opoka – Securitization Fund Manager

Opoka TFI is a private and independent investment company since 2007. The firm is owned by the Duda family, entrepreneurs turned investors, who built one of the three biggest meat processing firms in Poland. Opoka TFI manages only closed investment funds, designed for high net worth individuals and firms.  Opoka TFI manages nine different funds with total assets in excess of 1.5m zloty ($400m). The team consists of fund managers who, throughout their careers, achieved best investment results in Poland and a laureate of the Golden Wallet award from the ’Parkiet’ magazine.

ESTIM – Real Estate Valuation

ESTIM serves both commercial and corporate clients offering a broad range of commercial and residential property valuation and consulting services with full geographic coverage for Poland. The Partnership was formed in March 2004. Headquartered in Warsaw, the Partnership offers full real property valuation (full appraisal report) as well as other appraisal products needed in the market (simplified appraisal report, market report by property range/kind as required by the client, external inspection report, incl. dive-by inspections, examination of construction investment, examination of the land registers, and inspection photos. About 30% of completed orders regard full appraisals, some 40% simplified appraisals and bank required report on the property value. Drive-by inspections and Motoflash portfolios make the rest of the sales volume. Some 1/5 of the revenue is brought in house by the business with individual clients; 4/5 comes from the corporate clients, in which the banking sector makes about a half. ESTIM has a approximately 3,200 clients.

URBANEK – Legal Counsel for Poland Securitization & Purchase/Sale Contracts

ESTIM serves both commercial and corporate clients offering a broad range of commercial and residential property valuation and consulting services with full geographic coverage for Poland. The Partnership was formed in March 2004. Headquartered in Warsaw, the Partnership offers full real property valuation (full appraisal report) as well as other appraisal products needed in the market (simplified appraisal report, market report by property range/kind as required by the client, external inspection report, incl. dive-by inspections, examination of construction investment, examination of the land registers, and inspection photos. About 30% of completed orders regard full appraisals, some 40% simplified appraisals and bank required report on the property value. Drive-by inspections and Motoflash portfolios make the rest of the sales volume. Some 1/5 of the revenue is brought in house by the business with individual clients; 4/5 comes from the corporate clients, in which the banking sector makes about a half. ESTIM has a approximately 3,200 clients.

Van Campen Liem – Legal Counsel for Luxembourg Fund

Van Campen Liem was formed in 2012. We offer high quality expertise and advice in corporate transactions and international tax structuring. Our team consists of tax lawyers, corporate lawyers, civil law notaries and funds lawyers to ensure complete support in all aspects of corporate and transactional work. The founders have already worked together for many years at one of the largest and reputable firms in the world and have attracted a number of reputable partners and senior lawyers from various other international firms.

Poland Offices

Wroclaw

4 Wlodkowica Street
50-072 Wroclaw
Poland

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