Mortgages are loans collateralized by real property that carry a monthly interest payment agreed to by the borrower at the time the lender issues the loan. The borrower is legally obligated to pay the interest income and part of the principal each month, with each payment the interest decreases while the principal increases according to the amortization table. This promise to repay provides steady monthly income with no operational burden on the investor in the mortgage. If the value of equity goes up or down there is no immediate impact on the mortgage investor, but the home equity does provide coverage in the event of a late payment or default.

Mortgage investors have the first right to the property, any other equity owner (homeowner or investor not living in the home) loses their rights to the home unless the mortgage payments are made or its paid in full (usually through refinance). In the event the borrower stops paying, the mortgage goes into default and a “workout” is attempted by understanding the borrower’s situation. If a workout that is beneficial for investors and borrowers is not possible the next step is foreclosure of the home. In the event of foreclosure the amount that can be recouped by mortgage investor can exceed their original investment, ie the amount of the outstanding Unpaid Principal Balance (UPB) as long as the home has strong market value.

Most investors in properties do not think about investing in loans because they assume it’s an activity only banks can do, do not know the mechanics of investing in loans, lack legal advice, or do not have the large sums of capital needed to purchase a diversified portfolio of mortgages, this is where Citinvest steps in with capital, investment know-how and operational capacity to buy hundreds of mortgages across the United States.

The most basic – and effective – strategy for minimizing risk is diversification. A well-diversified portfolio consists of different types of mortgages (30-year, 15-year, varying LTVs, etc) from diverse geographical areas, with varying degrees of risk. While most investment professionals agree that diversification can’t guarantee against a loss, it is an important component to helping you reach your financial goals, while minimizing your risk.

Most non-institutional investors have a limited investment budget and may find it difficult to create an adequately diversified portfolio. This is one of Citinvest strongest value propositions in that each investment is immediately diversified across a portfolio of mortgages, no matter the amount invested, similar to mutual fund allocation.

The loan-to-value ratio (LTV ratio) is a lending risk assessment ratio that financial institutions and lenders examine before approving a mortgage. As the name implies, it is calculated by dividing the UPB of the mortgage by the market price of the home, for example, a $160,000 loan on a home worth $200,000, equals $160,000/$200,000 = 80% LTV. CLTV is calculated similarly but takes into account combined or TOTAL loans against the home, for this reason, it provides a complete picture of all debt against a home.

Typically, assessments with high CLTV ratios are generally seen as higher risk and, therefore, if the mortgage is approved, the loan generally costs the borrower more to borrow (higher interest rate or upfront points). Additionally, a loan with a high CLTV ratio may require the borrower to purchase mortgage insurance to offset the risk to the lender.

The loan-to-value ratio (LTV ratio) is a lending risk assessment ratio that financial institutions and lenders examine before approving a mortgage. As the name implies, it is calculated by dividing the UPB of the mortgage by the market price of the home, for example, a $160,000 loan on a home worth $200,000, equals $160,000/$200,000 = 80% LTV. CLTV is calculated similarly but takes into account combined or TOTAL loans against the home, for this reason, it provides a complete picture of all debt against a home.

Typically, assessments with high CLTV ratios are generally seen as higher risk and, therefore, if the mortgage is approved, the loan generally costs the borrower more to borrow (higher interest rate or upfront points). Additionally, a loan with a high CLTV ratio may require the borrower to purchase mortgage insurance to offset the risk to the lender.

Cash-on-cash return is a rate of return that measures the cash income earned on the cash invested. It is considered relatively easy to understand and one of the most important real estate ROI calculations. Cash on Cash Return is equal to Annual Income less Total Investment.

The Cash-on-Cash return for each individual mortgage is calculated by summing Cash Inflows including: annual dollar interest income, partial recognition of discount (difference between UPB and Purchase Price) and anticipated loan payoff (using US mortgage average of 4 year refinancing rates); then subtracting Cash Outflows including: mortgage closing/transfer fees, monthly servicing fee and any other workout expenses in case of loan default. This total is then divided by the outstanding investment (original investment less repaid principal each month).

Estimated Cash-on-Cash return for each loan portfolio is calculated by taking the weighted average of the Cash-on-Cash return for each individual mortgage in the portfolio. By using the weighted average, and not a simple average, we account for the weight of each mortgage on the portfolio sum based on its Unpaid Principal Balance (for example, a loan with UPB of $100,000 carries twice the weight than a loan with UPB of $50,000, thus the former’s interest rate is more heavily weighted).

Mortgage loan servicing companies are not the same as mortgage lenders. As a servicing company they provide 3rd party support between borrowers and investors in mortgages including to collect payments from borrowers, remit principal and interest to investors for securitized loans, remit property tax and insurance premiums from escrow funds, and perform collection, loss mitigation, and foreclosure activities with respect to delinquent borrowers. The CFPB has oversight into Mortgage servicing companies. According to the Mortgage Bankers Association (MBA) the cost to service a performing loan has increased from $59 to $156 per loan per year from 2008 to 2013, while the non-performing cost to service has risen from $482 to $2,357 per loan per year.

In order to leverage knowledgeable services, Citinvest will partner with 3rd party servicers, this is a cost that is deducted from interest received each month from each loan.

The loan-to-value ratio (LTV ratio) is a lending risk assessment ratio that financial institutions and lenders examine before approving a mortgage. As the name implies, it is calculated by dividing the UPB of the mortgage by the market price of the home, for example, a $160,000 loan on a home worth $200,000, equals $160,000/$200,000 = 80% LTV. CLTV is calculated similarly but takes into account combined or TOTAL loans against the home, for this reason, it provides a complete picture of all debt against a home.

Typically, assessments with high CLTV ratios are generally seen as higher risk and, therefore, if the mortgage is approved, the loan generally costs the borrower more to borrow (higher interest rate or upfront points). Additionally, a loan with a high CLTV ratio may require the borrower to purchase mortgage insurance to offset the risk to the lender.