Mortgage Pools Give Clients the Security of Steady Income and High Yields In Retirement
by Thomas O'Bryon

Planning for retirement has become even more complicated as sources for investment income are drying up and people are facing greater financial uncertainty. If you are looking for investments for your clients, you must be as concerned about protection as you are about profits. No matter how diversified a retirement portfolio is, the question is whether the portfolio will generate an income stream that lasts a lifetime.

Consider real estate mortgage pools for an investment that provides the predictability of monthly cash flow; a high yield; an inflationary advantage that is not affected by market volatility; and a secured principal. Similar to a mutual fund, a mortgage pool is made up of a large number of diverse trust deed loans. The loans are secured by real estate. An investor purchases shares of the mortgage pool and the fund lends the money to borrowers. Borrowers make interest payments to the fund and the earnings are paid to investors.

The collateral-based loans usually have an average loan-to-value target of 65%, leaving a 35% protective equity. The loans typically generate high returns, often yielding the investor 10% or more.

Mortgage pools are secured by a variety of well-underwritten real estate loans. This diversification reduces the investor’s risk. Investing $250,000 into a mortgage pool with 50 collateral-based property loans provides better security through diversification than investing in a single property. If a single property in a mortgage pool is foreclosed, the risk to the investor is minimized because the trust deed is one of several in the pool. In contrast, the result could be catastrophic if the investor owned the entire loan.

Lending On Real Estate Is More Prudent Than Owning

Traditional financing institutions have tightened their lending practices in response to the turmoil in the mortgage industry and declining real estate prices. The banking system has become paralyzed, thereby opening up the lending market to the private sector. Private lenders have been more aggressive in the valuation of property, using higher cap rates, thereby reducing property valuation. Mortgage pool investments can be secure even in a declining market thanks to lending on real estate with a lower appraised value combined with strict underwriting criteria.

If you are thinking about recommending real estate investments to your clients, consider that lending on real estate may be more prudent and profitable than buying real estate. In this market, would you rather recommend that your client purchase property that could decline in value or recommend that your client loan on a property at 65% of its value while earning a 10% return. Mortgage pool funds represent one of the strongest revenue opportunities today, making them ideal for retired clients, those nearing retirement, or those on a fixed income. Further, your clients can gain a higher rate of return for their retirement fund by investing IRA or pension funds into a pool. In addition, mortgage pool investors can receive monthly payments, allow the principal to grow through automatic reinvestment, or do both.

Mortgage pools are ideal for clients who don’t have much real estate knowledge, but want to enjoy the benefits of real estate investments. Fund managers control the underwriting and servicing process, make the credit decisions, and decide which loans to approve. A monthly statement keeps investors informed about interest paid, balances, and other details of their mortgage portfolio.
In addition to retirees, brokers, agents, and financial planners should consider recommending mortgage pool investing to their clients in the following categories:
• Long-term investors – They want their investment to accumulate with the funds compounding and not being taken out in the form of spendable income.
• Clients who like simplicity – Many people want to be sure that they have a predictable income at a high yield every month instead of continually tracking the stock market.
• Corporations – Corporations can often get higher yields than they can make with their own products. Also, they can use these for their employees’ funds for retirement purposes.
• Non-profits – Churches, schools, and non-profits often place their funds into mortgage pools for safety, simplicity of management, and high yields.
• Insurance companies – They place money into the mortgage pools again, for a high yield investment.
• Medical professionals and other professionals – They invest in mortgage pools in order to have their funds earn top dollar.
Since mortgage pools are registered securities, state and federal agencies require fund managers to provide a full disclosure through an offering memorandum, which minimizes the legal risks. Good mortgage pool companies are audited annually by CPAs

Benefits To Brokers, Agents and Financial Planners

Brokers, agents, and financial planners who invest their client’s assets into mortgage pools can earn a onetime commission of up to 5%. In addition, mortgage pools can strengthen the broker/client relationship by giving brokers another investment option to present to clients who are worried about contending with uncertain income streams or outliving their assets. A mortgage pool fund is an effective vehicle for brokers to help clients accumulate capital and provide security for lifetime retirement income.
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Thomas OBryon is CEO of Los Angeles-based Wilshire Finance Partners, an asset-based commercial real estate lending institution. OBryon has more than 30 years of experience in the real estate industry, specializing in the private-money mortgage business. He is a pioneer of many of the advanced real estate formulas and techniques used to help steer the private-money business through ever-changing cycles. For more information, contact Wilshire Finance Partners, 1990 S. Bundy Dr., #630, Los Angeles, CA 90025, call 866-575-5070 or 310-736-1370, or visit http://wilshirefp.com http://wilshirefp.com.