The GOLD in AAM...PRESENT VALUE OF THE SERVICING PORTFOLIO
John, the term "Future Interest Income" is not used in the business.
However, this may be trying to reference the future Interest Income expected on Servicing the loan portfolio.
I guess WALL STREET and the ANALYSTS don't understand the mortgage business and how to value a servicing portfolio. This is where all
the GOLD is.
1. A mortgage /finance company makes a loan to a borrower using their line-of-credit with the bank. Once the line-of-credit gets used up, the mortgage company (AAM), securitizes (sells-off) this portfolio to a large investor (bank), in one large bundel...say $500 Million. The mortgage company takes the proceeds and pays-off the line-of-credit with the bank and frees up the money to loan again.
2. However, the mortgage company (AAM), keeps the servicing right on the $500 Million portfolio. In otherwords, Aames would continue to collect monthly payments from the borrowers and pass the payments on to the Bank that bought the portfolio. For this AAMES would receive
a 1-2% (e) interest a year as income on the entire $500 Million portfolio. The loans are written for up to 15 years. This is how true mortgage lenders make their steady monthly income. From SERVICING FEES (INTEREST INCOME). This is what motivates other lenders (Banks), to buy these companys....FOR THEIR SERVICING PORTFOLIO.
3.Everyone has been breaking down Aames financial report. But not
one of you (or the Analysts), have mentioned AAMES SERVICING PROTFOLIO.
4. AAMES SERVICING PORTFOLIO went from:
$1.5 BILLION IN 1996 TO $3.2 BILLION IN 1997
Double 1 Year Ago.
TO ALL.....THERE IS GOLD IN THEM THERE (AAMES) HILLS.
However, Wall Street does not know how to Value the
"CURRENT VALUE" OF A $3.2 BILLION SERVICING PORTFOLIO.
5. As to the concern about Prepayments of the loans in the portfolio,
this is COMMON. Portfolios of mortgage/finance companys tend to
be higher rates than bank loans, so they pay off faster. However,
each time AAMES is paid off they may receive a PREPAYMENT PENALTY
of 7.5% (6 months interest on 80% of the balance), on the principal amount due. AAMES LOVES PREPAYMENTS.
6. But Aames keps originating more and more loans to take their place.
AAmes loves this to, because with each loan originated, their receive 5 to 10%+ (e) on the gross loan amount.
7. SO LET SEE:
10.0% (e) Loan Origination (on the Gross loan amt)
7.5% (e) Prepayment Penalty (on early payoffs)
1-2% (e) Servicing Fee (On $3.2 Billion, up to 15 yrs)
THERE IS TRULY GOLD IN THEM THERE AAMES FINANCIAL STATMENTS.
P.S One anaylst was concerned about more competition coming into Aames Market. He is NOT here. He does not understand that when the market
gets HOT in California, it is more BROKERS that come into the market.
95% of all lenders are merely BROKERS. What he fails to realize, is
that they "NEED" AAMES to BROKER THEIR LOANS TO.
BUY FOR NOW.
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