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Microcap & Penny Stocks : VLVT (was CSMA) -- Ignore unavailable to you. Want to Upgrade?

To: Steven Durrington who wrote (3104)	12/9/1997 12:19:00 AM
From: TraderGreg	Read Replies (4) \| Respond to of 11708

<If LPS's 3000 member network sells 150K mortgages to say, 10 customers each, and makes 0.5% on each one, then would they make $750 x 30,000, or about $22,000,000 a year, or about $1 per share ?> While I am in the mortgage business, I'm one of those retail brokers and I exclusively do 1st trust loans. Nevertheless, I checked with my broker about the wholesale side. Herewith my comments: 1. Forget 150K loan amounts. Remember, these are 2nd trusts for people who have little equity. Example FHA/VA borrowers or conventional loans with 5 or 10 % down. Moreover, they most likely aren't expensive properties. Why? Most 500K homes have far more than 10 % equity and those people would most likely get conventional home equity loans. In my opinion, the largest type of 125 2nd would be applied on say a 250K property with a 225K first trust. Using the 125% rule , it might stretch the largest second to (250)(1.25) - 225 or approx. 87K. More likely though we're looking at 150K properties with 135K owed for a 2nd trust of (150)(1.25)-135 or approx. 52K. 2. There may be 3000 retail brokers but how many will actively market this product. LPS' 125 is not the only one out there. A typical retail broker may have correspondent relationships with 40 or 50 wholesale lenders yet typically send 95 % of their business to 3 or 4. It would be an unbelievable WAG for me to give you a broker volume estimate. 3. The good news!!! They're gonna make a hell of a lot more than 1/2 of 1 percent. And here's why: a. Wholesale lenders use retail brokers because it frees them from having to open up retail offices and staff every one of them. Being wholesale, they need maybe three or four offices for the whole country staffed with 1 manager, 2 or 3 underwriters, a processor, a loan closer, and 1 account rep to sign up and schmooze their retail brokers. This is small change compared to opening retail offices every 50 or 100 miles. b.Since these are small loans to a very unique group of borrowers(no equity/high rate NON DEDUCTIBLE credit cards), their slick sales force can sell the loan with a higher number of points and fairly high rates(14 to 16 % TAX DEDUCTIBLE). The investor supplying the money will be willing to pay not only up front points to LPS plus a portion of the yearly interest rate(1% is not unheard of). Why? Because borrowers getting a 125% 2nd trust loan MUST ABSOLUTELY HAVE PERFECT CREDIT. LPS will sell the money to the retail broker at PAR(no points) who will make their money charging the borrowers. In other words, the investor's payment to LPS will be the gift that keeps on giving(i.e., like insurance co residuals to their agents). LPS may gross anywhere from 1.5 to 3 % up front and another 1 % or more each year the loan is active. So, what does this mean. Well, if 2/3 of these brokers play switch with their thumbs and only 1000 do say 5 of these 50K loans a year, we see (1000)(5)(50000)=$250 million in business per year. Working off a minimum of 1.5% upfront(to account for operating costs) plus 1 % yearly, the first year's business could net $6.25 million. More important, the 2nd year would net new business plus another 2.4million from the first year's business(reduced due to principal payoff). In year 3, you'd get new business plus 4.5million from old business. This goes on and on and diminishes as more and more principal is paid off/refinanced but the point is there is some real residual benefit each year from prior years business. My guess would be more like $.25 per share initially and increasing a dime or so thereafter. In any event, there is potential here to contribute $2.50 to $3.00 in share price after an obligatory wait and see period. It certainly is a worthy component to share value. Sorry for the long post. TG