AAPL’s Emergency COVID-19 Virtual Meeting on Forbearance Best Pracitices

Eddie Wilson:

Hey everyone. Thank you so much for joining. This is Eddie Wilson, the CEO of the American Association of Private Lenders. We're excited to be with you again and bringing you great content through this most difficult time. I know that most of the content we've been bringing you over the past couple of weeks is based on user request. Most of the comments and questions we're getting as well as our partners at Geraci are getting, we're trying to address them, and so today would be in a similar vein. We're trying to address the issues and start creating true expectations as to what potentially could be coming in the very near future. And so we've asked some distinguished guests today to be a part of that and help us to discover and to talk about what is to come. Because the site, our American Association of Private Lenders site, aaplonline.com, is so heavily trafficked today for people looking for capital.

We would, by way of starting an introduction, like for you to go if you are a lender and update your AAPL member profile, the traffic on our member portion of our site for people looking for additional capital or looking to see who's still lending or looking for opportunities is a huge component of our traffic today. And so if you are a lender, we really would encourage you to go and make sure that your member profile is up to date because we have a ton of borrowers looking for capital today that really don't know where else to turn. So they come to our site, they're constantly looking. So if you don't mind, go to aaplonline.com and to the member dashboard section and update your member information so that the people can easily find, and if you have changed your terms and things like that, all that can be talked about there.

If you are constantly looking for information and updates on the COVID-19 situation, we've provided that on AAPL online as well. If you go to aaplonline.com/covid19, you can register there for constant updates where we put events like this and events that we have in partnership with Think Realty and GSI to make sure that you understand each and every day what's going on and the great content that we're bringing. And we will continue to update you there. And then also all the past videos and articles, market outlooks, strategy, things like that are all posted there as well and you can peruse through that and find a lot of great information. Today we have a couple of guests, but the first guest that we're going to bring on today is John Beacham. John is with us, I believe, all the way from New York City or at least that area. And John is going to talk to us about Toorak and what's on there as well as current market conditions. I think we're going to talk forbearance and a lot of other issues, but John, if you could go ahead and take it away. Thanks so much for joining us today.

John Beacham:

Well thank you Eddie, and thanks for having me here. I'm really, really happy to be with you and the industry at this time and share a little bit about our perspective and what we're seeing here at ack. So by way of background, Toorak is a loan aggregator. We partner with lenders across country to acquire loans. Our portfolio total is about 2.2 billion in the US currently, and we also have about a hundred million pounds in the UK of loans. Predominantly there are shortterm loans, curd by bridge loans on one in four family and multifamily properties. We also have a portfolio of 30 years single family rental loans. Our loans are 100% business purpose loans and therefore not subject to consumer lending regulations or most of the recently announced executive action which have mortgage lending. Although we cannot know what the future holds, particularly as these events are unprecedented in modern times.

In terms of the immediate future, we expect that real estate transaction volumes will slow pretty considerably in virus type areas. Rehab timelines will be extended as a result of permitting and infection delays as well as the higher level of difficulty with construction workers or likely have getting the work in affected areas. On the positive side, we've noted that construction has been excluded as an essential industry and many of the state, state at home orders have been issued. For example, in New Jersey where we're based here at Toorak, construction is generally banned unless it's single family construction. So most of the construction work financing is actually committed, which is good. In addition, we expect the liquidity of certain borrowers will be constrained as a result of the stay-at-home orders and other factors. We'll expect that that's going to result in slower prepayment speeds in our loans and higher delinquency rates until the situation stabilizes.

Although there's really no recent US precedent for the virus, we spent a lot of time setting a lot of other scenarios to really understand what's likely to happen here. We've looked at other markets affect the pandemics and observed that real estate sales nearly stopped in Wuhan and that was really affected earlier this year and nearly went down to zero and infection rate, sorry, real estate sale rates went down by somewhere between 33 and 72% in Hong Kong at the peak of the SARS crisis. So we expect that's going to happen here and certainly in virus affected areas as action volumes go slow considerably. We also expect that a portion of our loan portfolio that will require extensions will increase as timelines and liquidity becomes tougher during this period of time. We've taken a number of actions to prepare for these expected challenges, which I'm going to discuss in a little bit as we look forward to the next few months.

We're preparing for many more forbearance request across our portfolio today. We've received forbearance request approximately across approximately 4% of our bridge loan portfolio and about 15% of our rental loan portfolio to date and expect that we'll see more requests in the near term. Many of those forbearance requests are not valid and won't actually result in forbearance or any action that part, but that's roughly the request we received as of today. The difference between these two products is really interesting. We noticed that national reports indicate that somewhere between eight and 10% of renters are not paying their April 1st payment due to the virus, yet we have about 15% of our rental portfolio is asking for forbearance. Sincerely, clearly it's some disconnect. Our goal is to be fair to our borrowers, continue funding draws, take other steps to enable our borrowers to complete their projects and take enforcement action when necessary to protect the position.

I think it's really important that we as an industry at this time especially, are fair to our borrowers during this time and recognizes that some of them are going through a period of distress to the circumstances beyond their control. The reputation of our industry will be impacted by the decisions that each of us make and our interests are to do the right thing as an industry and more importantly to be perceived as be doing the right thing, especially to the extent that we're concerned about potential future regulation of our industry. So I think now it's time to take an action and do the right thing. Importantly, we think it's very important that all originators and frankly everyone this days fund all draws that are legitimate as that's fair to the borrowers who are doing their part, but also helps the projects that we're financing get into a more sellable finished date to act is going to fund all draws for work that's been completed.

I've heard rumors that some may not do that, and hopefully that's not true across the industry. I don't think that's the right thing. But with regard to the act before getting into forbearance, I'll talk a little bit what we've done on the forbearance. On the asset management side, we've added a lot of asset management staff to our company, both at senior and junior level to augment our team in anticipation of what we're about to go through. We've implemented a modification and waiver policy, which I'm going to discuss to address expected come requests. This policy is more lenient than our prior policy. It's really designed to encourage borrowers to complete their projects and we've also reached out to each of our servicers to make sure that they have the capacity and wherewithal to continue doing their servicing actions. During this time, I'm really happy to report that all of our servicers are the full ability to work at home and in fact, we've actually discovered pleasantly that most of our RS actually been working at home for many of the staff members that our servicing company has been working all for many years.

It's really not a change for many of them, so that's good. We've also increased due diligence requests and draw funding during this period of liquidity constraints that we expect is possible that we'll get some non entirely legitimate draw funding requests. And so we've added additional process steps to make sure that we're doing the right thing in that front. And finally, we're actively working with multiple councils to monitor all the government programs, government initiatives and various announcements that are happening jurisdiction by jurisdiction as they affect our asset management strategy that points. It feels like that by itself is almost full-time jobs. So it's spending a lot of time in that. In terms of our modification forbearance programs, we implement a multi-step process to really address inquiries. Before I go into the details for you guys to understand that everyone on this call has a different financing source or a different way they're financing their loans.

We have toric have multiple, we have some loans at financing banks, some loans have been securitized and they're all different how they get treated. So the first step you really need to do is go talk to your financing source, understand the requirements that they may have, and you need to modify your program to make sure it ultimately works wherever your financial are. That's really the first step I encourage all of you to do. We had to with the extensive communications with all of our financing partners, both our securitization bond investors and our banks to make sure they understand what we're doing. We're communicating that well them. But here at Toric, once we receive a forbearance request from a borrower that's in good standing, which means for us people who have been default as of March 1st and they're claiming there's a COVID related to the forbearance need, really doesn't make a lot of sense to us.

So we put those people into a different category, but people seem to have legitimately we begin a real evaluation process and the goal of that process to identify borrowers who are doing the right thing, they have legitimate distress and are eager and willing to act in good faith and want to complete their project. If it's a rehab project, which is what we want as well, we don't, we want to focus on bars who have been affected by the virus. Now, people on non virus affected areas and certainly want to screen out people on sufficient financial resources to make their loan payments. Some borrowers are under the impression that the recent government announced programs apply to business purpose loans in the same way they apply to consumer loans and that's just not true. But that being said, nonetheless, we try to be fair and think that's the right way to approach our bars.

So the first step that we do when we get a forbearance request is schedule a meeting with the buyers. We do that live on the phone. We really have a team member who will go through that bar. The status of project the bar is financial needs, the financial resources, and any source of repayment. For example, if it's a rental loan, one of the first questions we're going to be asking is, Hey, is the renter still paying? Are the renter not? Is the property occupied or not? We also act ask about local conditions can have get done in that particular area. Are you able to get the property? Is it a state and home order that may affect what's going on? What these factors really understand what's going on at the borrower level and what's affecting 'em in the event it seems to be a legitimate need.

Then we go to the second phase and then we send out a detailed questionnaire to our buyers. That questionnaire asks a bunch of questions about status of the property, the financial wherewithal of the borrower, and a lot of things we talked about during our interview, but also ask a lot of documentation that we use to back that up. Documentation will differ depending on the nature of the deal, but could be an update on the progress of the property. It could be the lease, it could be bank statements, income documentation for the borrower or tax return information. Also, it could be really anything else that's relevant to that situation. So once we get that form in, we have a senior member of our team review that form in the context of the response that we've gotten and ultimately make a decision as what makes sense and what type of accommodation we may or may not offer to that bar.

And there's a wide range of things we can do. Many borrowers need a lot of accommodation, many borrowers are able to service it, well complete the project but without help. And what we're really trying to do is figure out the borrowers to really have a legitimate need to help. And that's the purpose of this whole process. Decisions really is done by us in a case by case basis really based upon that demonstrated need that we see in the context of that interview process and that documentation process that we go through. Examples of actions we may take include a lot of things. One is funding rehab draws and reserving interest out of that. So in many cases we'll be able to say a bar and say We fund a rehab draw, are you okay if we take three months worth of interest out of that, create an interest reserve and use that to kind fund future payments?

In any case, that's what makes sense and work for the borrower. We're also able to consider in some cases partial interest of deferrals, waivers of late fees or reductions in late fees instead of default interest and modification fees, in some cases forbearance of interest for a short period of time. It really differs a lot depending on a particular situation. We try not to have a blanket policy. It's really ultimately case by case basis, but no matter what we ultimately decide, even the answer is no. We have a documentation process. We'll send to the borrower a standardized form documentation saying, Hey, no, you're not been granted a forbearance or certain modification or you have. And if they have, they'll acknowledge sign that documentation and ultimately respond to us. So that's the process that we do. That documentation will typically have all the details of whatever we're doing given the nature of that particular situation, but also have whatever waivers we may need from the bar.

It could be a waiver of defenses, it could be if appropriate professional judgment, but whatever sort of legal protections we need as a lender to make sure our provision is sound. Because what we're trying to do is we're trying to help the borrower. We certainly don't want that to be used against us later on and we're trying to do the right thing to be the borrower. Finally, in terms of loan extensions, we're seeing a lot of request files. Normally in even the order course, we see a lot of requests for loan extensions. So we expect that to continue, frankly to expand more as we see more need for projects to go on beyond the original timeframe. So we are really expect to be much more flexible than we have in the past on loan extensions to ask the bar, Hey, why is it taking so long to get the project done? What's going on in your local area? And if there's a legitimate need and a reason for that, we'll grant those loan extensions because ultimately for us, the real key is helping the bars get these projects done as soon as it can safely and effectively and sort of legally in the area because we think that ultimately helps us and that's the bar is to get the project done. That's really what we're doing here to happy to once we go through the process, happy to answer any questions and one may ask.

Nema Daghbandan, Esq.:

Thank you, John. Appreciate your thoughts there. Ray, why don't you tell us a little bit about what's happening on the AlphaFlow side?

Ray Sturm:

Yeah, thank you Nema, and thanks for having me as well, you and Eddie and everyone else. Just as a quick background about AlphaFlow, I'm the CEO of AlphaFlow. We're a capital partner to private lenders around the country. We own loans in about 40 or so states, so we're buying nationally and our focus, we don't get into the long-term rental. Our focus is squarely on the 12 to 24 month bridge loan market, usually with a value add component. So everything we're looking at in our portfolio today has something to do with that. A lot of construction draws a lot of work around there. Our capital these days comes from major Wall Street institutions, so think of REITs, think of investment banks, think of asset managers, and they're coming to us basically to access this industry to access all of you and make credit decisions on their behalf.

As much as this has become a scary time for investors, we're actually standing up a new investment vehicle right now for new investors that want to get in at this point because as we've all seen, rates have come back up if there is action happening at all. So I do think there's still investor interest in this space. I think the place where we might see the world a little differently than a lot of places people in the space is we try and look for solutions through a technology lens. And so if you've worked with us at all, you've seen that we're building software basically to try and make everything easier. That's the way we approach this type of thing.

What we've seen in our portfolio and what we've seen in the longterm is really just a larger opportunity that's growing. It's certainly a very rough patch for everyone, but I think what we see in the long run is the underlying factors that got all of us into this industry. We start talking about aging housing stock, we start talking about shortage of housing, house builds behind, that's all still going to be there on the other side of Covid. And the other thing that we've all seen is whenever shocks like this happen, banks tighten up that much more. So that opportunity should still be pretty large for us. And so to John's point, our focus is very much internal. It's looking at the portfolio and trying to understand how do we make things stable. And for us, I think Nema, the approach is similar to how we start with everything else in the business.

As you talk to your borrowers, you talk to your lenders, engagement is just critical. If you're going to work with people, you got to communicate, you got to be transparent. One of the things we've seen, to John's point about do I need to pay the mortgage or not, is if people don't have information, they're going to fill that vacuum in with something. And so you got to go to 'em, you got to talk to your partners on this and that. For lenders, that could mean your capital partners. That could mean your borrowers on this side who are coming to you wanting to know what do they have to do, what's the policy, what's the process, what's the expectations? And so we've really tried and build that out and we've tried and get that out to partners on both sides of our business. In terms of our portfolio, we've had about 6% of the portfolio so far ask for some sort of relief in terms of something that's going on today and that might be asking for interest payment deferral that might be asking for help with draws that might be help for asking for extensions.

And so we've basically created a process and I think one of the things really to highlight to everybody here is this is a legal process. We're talking about talking amending legal docs in one form or another. And I think something that's going to be critical for us here is just trying to avoid the perception as an industry and as individual businesses, any perception of predatory lending. That's going to be critical here. And so highly urge you to work with council. We work very closely with the Gisi folks. We're really closely with John Hornick. We're very close with, there's a lot of great counsel out there that I highly recommend that as you're going through and creating policies here, these are the sort of people you want to work with to let these come to light in the right way. So in terms of our actual process, what we've done is in a way I won't repeat a lot of what John said, it's very similar.

You've got to come with a hardship, but as long as you're in good standing, and for us that means you made your March 1st payment and you can catch up if you didn't to get into this. But if you weren't in good standing, you're not in good standing, you're not necessarily eligible for this, there was another issue already going on. But if you are eligible, there's really four buckets where we look at people. The most common two are, Hey, I need interest payment, deferment for every reason you can imagine. And two, they need loan maturity, extension, and the use case there is typically we're looking at something that's done or close to done and the markets are just frozen right now. No one's going to buy that house. And so for them to get over there, for them to actually get successful with this, they need a little time.

That's fine. And then we've got some that are talking about a combination of those two where they need both some interest payment deferment and they need a little help on the extension. And then the final one that we're looking at is an edge case we haven't seen as much is something similar that again John brought up, which is saying we're going to give you a construction draw, but we need to hold back some of that for future reserve, for future interest payments. Those are typically happening for something that you think the project might be done, you're not necessarily certain they're going to pay because they might strategically default on that. So you might hold that back to keep that loan current right there. For each piece of those, what you really want to do is document these. Some people are doing these in a very casual way, we're hearing it.

These are conversations over the phone, they're emails exchanged. You want to document every step of this because at some point there may be fees, there may not be fees, but if you're working with a pretty good processor, we work with Cohen as our main subservicer over there. They require documentation, they require a loan modification. If you're going to forbear any interest, if you're actually going to push anything towards the end, that's fine, but to keep this thing healthy, to keep this thing working and keep the borrowers basically working on their properties, which is what we all want to do, we want to make sure to keep funding draws. We want to keep these projects done because at the end of the day, the last thing we want is half done properties. So what we've seen is the solution is just documenting every step and that means asking them for the right sort of information, gathering that, getting that to the servicers and continuing things going. It's really about just being responsive. I know there's a lot there, nema, but John touched on it too. I think maybe just jumping into q and a might help the most from there.

Nema Daghbandan, Esq.:

Really appreciate that as well Ray. And before we kind of jump in here, I want to give people a little bit of the logistics of how this is structured as well. So for all of the attendees here at the bottom of your screen, you should have three options. One is chat, one is Q&A, and the third is to raise your hand. I think the best structure to do is if you have any questions as we're coming along here is use the q and a box. If it's a question for a specific participant or panelist up here, feel free to write, John, you said something about the market coming back alive. Want to understand your perspective a little bit more so we can direct questions at the very end. But again, there is a q and a box that's probably the best way to communicate with the panelists.

Feel free to type in questions at any given time. Ideally I pinpoint the panelists you want to identify that question to or if it's a question for multiple panelists, we can read those off and see which panelists is the most qualified or feels like they have something to offer on that. Before we jump in here as well, I actually do want to give a special thank you to John, the subject matter. And the reason for the urgency of this was actually a conversation between John and I last week just kind of catching up and talking about what was happening in the industry and we were talking about this issue of forbearances and how there's just this heavy demand for it and John was wise enough to say is right now is the time our industry really needs to come together and determine the best practices because if every originator is out there kind of doing their own thing, it's just not a great look for our industry and it could have really major ramifications for all of us.

And so it was an opportunity to kind of come together and talk about, well, what should we be doing as an industry versus just kind letting each person determine their own course. So just a very big thank you to John for kind of spearheading this effort and getting the urgency across. And definitely thank you Ray as well for being able to jump in this last second and join us. It's great to just have two very, very significant companies who really are on the front lines of this by owning just thousands and thousands of loans and really dealing with these issues head on. So thank you for your leadership in all this and kind of big picture in terms of what the purpose and content of this is really giving the attendees a rules of the road of how to approach these situation. You're all going to get flooded by this.

We're talking to clients all the time, very much understand that you are getting a lot of phone calls and you're not necessarily sure how you should approach it. So hopefully by the time we're done with this today, you'll get a little bit more confidence in terms of the right approach to these issues. So kind of background facts, some of the things that we're tracking on here is MBA is doing a great job of actually reporting the statistical data side in the background. If you look on here is between the first two weeks of March there was a 1270% increase in forbearance requests. That is typical. And in the last two weeks it went up to 1895% and the sheer number of loans or percentage of loans that were in forbearance grew from a quarter of a percent to 2.66% by April 1st. There is data that came out this morning from MBA saying that number is actually at three and three quarters percent to kind of show you how fast the situation is evolving and the sheer quantity of loans that are in forbearance.

And remember, MBA is not generally tracking a lot of the consumer data, so this is also a lot of commercial data that's getting tracked in there as well. So really just unprecedented time in terms of the sheer amount of quantity of both requests as well as the granting of deferral options that are already occurring. April, I think there was some expectation that April would be significant. I think there's an even greater expectation that may will be much greater in terms of quantity of requests as compared to April because the hardship is only getting worse for a lot of the people here. In terms of one of the things that we always try to, I could probably say and put this slide up a hundred times and still get another a hundred questions on it, and I suspect that you out there really facing a challenge which is not only are your borrowers probably calling you requesting deferrals or forbearance, they may be even be demanding it of you and saying is, well the government said I don't have to pay my mortgage.

I've been hearing it on the news. There's just this sheer confusion in the marketplace about what are the rules of the road, what are the federal laws, what are the state laws do you have to require or do you have to provide these requests? So from a federal standpoint, there is a moratorium or there is effectively a quasi requirement for FHFA. So federally related mortgage loans, these are your typical consumer loans secured by the primary residence of your borrower. These loans effectively have a policy of almost an automatic extension or forbearance of six months up to 12 months. There's additional considerations. That's not our world, but this is the state of the most federal loans. Most consumer loans will likely fall into this world. There really aren't a lot of, there's no federal guidance in our world. There's no federal law that says you have to act one way or another or have to provide forbearance doesn't exist in our marketplace.

There are state specific issues and we'll talk about those going down the road, which may for example, pre you from filing a NOA default or doing a foreclosure or charging default interest. There are some state prohibitions in place, but there's no law state or federal that says lender. You simply have to enter into a forbearance or provide some sort of deferral. And really when we're talking to clients up to date is effectively people are determining their own policies right now. And that's really the rightfully so is because you don't have a federal law or state law saying you must act in a certain way. I think originators and lenders are kind of sitting back saying, well, how do we want to approach this? What's our philosophical approach to this issue? I've had clients call up and say, Hey, can I just offer a blanket no policy?

Can I give every borrower who asks 90 days? And so you're kind of seeing each and every person crafting their own policies and that's rational, but it's also I think problematic. And the reason why it's problematic is we're experiencing we're in the middle of a crisis and no crisis or every crisis leads to some sort of day of reckoning, right? Our last time when we went through the great recession is we had proliferation of legislation from both the federal and state regulators dealing with these issues. So we know at some point there's going to be a day of reckoning. There's no way that this is going to all happen and that there's not going to be a governmental response to this when the dust settles. And that's really the key why We can't just be in a space where we say every man and every woman for themselves come up with your own policies, do whatever you think is best or worse yet is just say no to everybody because if we don't self-regulate to some degree right now, what you're going to have is I think a worldview in which the federal and state legislative bodies think that by providing the FHFA guidance that they've solved this mortgage problem on a national scale, they don't realize that most of you exist.

They still don't. And so at some point, if we are acting in a reckless way as an industry, it will come back to haunt us because effectively they will realize that there is a pretty significant impact that from the private lending community. And so we really have to be cautious about how we approach this because we don't really want Dodd-Frank 2.0 and we don't want CF Act 2.0 to come from all of this because we've chosen to be unnecessarily harsh during this time period. So really by being more generous, it's also a method of self preservation that we should be cognizant of during this time. So how do you actually take all that information and turn it into tangible useful facts for yourself? So first is when we're talking to clients right now, we're advising them. Do not have a blanket, no policy. There are real harms and there are people that are really in harm's way that that have lost our jobs, that have lost all their rental income.

They can't pay you if they wanted to and you could choose to foreclose on that. There's no legal requirement that says you can't to a great degree, but at the end of the day it's not a wise choice because these are borrowers in harm's way that really can't get out of it. And more importantly, your borrowing base that in a few months will be on fine footing or at least better footing and you know that to be true. But right now that for example, it's a rental income loan and their tenant's not paying them, they've lost their source of income, you've already looked at their bank statements, they're not going to be able to pay you. And so coming from a very aggressive standpoint, it's probably not the best policy right now. And so for those that we know that are directly affected and can demonstrate that they're actually providing you documentation to verify their need, the policy that makes sense here is a generous policy for them and for those that can't.

So those that cannot provide real documentation to support it or their documentation demonstrates that you've got a bank statement or you've got a balance sheet that actually demonstrates that you're capable of paying your choosing not to out of a fearful mentality, you should treat them very differently. And so what are these actual best practices? We'll lay 'em out in individual steps and we've also got collateral material that we'll provide after this webinar. So what we'll be providing to you after the webinar is the best practices. So an actual article that'll describe Practice one, practice two, practice three is similar to what we're doing here. And in addition to this, we're also going to be providing to you a forbearance request form. The forbearance request form is free for you to use. You can put it on your websites, you can send it to all your borrowers, but it's a form that all of you can provide out there so that your borrowers can apply for this forbearance and also tells them what backup documentation you're going to need from them in order to do so.

So we'll deliver this to you directly after the webinar, but wanted to make sure that you had some resources that came along with this presentation as well. So let's talk about the backup documentation side. So in addition to getting them to complete a form requesting the hardship itself, they should also provide you backup documentation that is specifically tailored to their individual need. Unlike your consumer loans in the big consumer market where it's almost always a personal hardship involved, I lost my job, my spouse lost their job, we're throttled back on, we're now forced part-time, we're both furloughed, whatever it looks like right in the consumer mortgage market. It's really my personal income has fallen apart and that's typically the request and how it's evaluated. We're dealing with business purpose loan, so we really deal with kind of a few different buckets of needs. Ray and John talked about this a little bit earlier, but really is when you're dealing with different loan products.

So if it's a rental income loan, your rental income is extremely important in this scenario. So did your tenant not pay? And as you know, many states are actually permitting or not permitting, but they're not. They're prohibiting evictions right now. So effectively is while you're in a process in which you are prohibiting or even you're prohibiting evictions, a lot of tenants are just taking this as an opportunity to simply not pay because they know their landlords can do nothing about it. And there was a recent Wall Street Journal article just on this point that said, I think something along the line of one third of renters did not pay in April to give you the vast scope of how big just the rental problem is. And so the way you would treat the backup documentation is different than this. So for example, when you're looking at backup documentation related to a rental product loan, you want to see deposit statements.

Can you confirm that the tenants are not making deposits in their account? Can they provide you affirmative statements? Are there tenants providing them written requests themselves? Are they by email? How are your landlords responding to them? You want to verify that they have an actual time of crisis here versus, Hey, I'm just worried that my tenants are not going to pay me down the road. So making sure that you can verify that their tenants are in fact not paying them in our space. Personal hardship is still relevant. So if you're going to be doing a fix and flip loan and it was a two household income that went down to one household income, it's relevant. It may not be a final determinative factor, but it's still relevant. So personal household income is still important. So how can you verify personal household income?

Did they get a letter from their employer? Are they applying for unemployment benefits? Have they requested any sort of federal or state benefit Are sample pieces of backup documentation that you can evaluate for personal hardship? And lastly is primarily we are lending to LLCs corporations regardless of whether it's rental or whether it is a fix and flip type product. And so can they demonstrate a lack of business income, right? Or did you rent or is this a true business loan? Was it a restaurant or is it commercial property or is it a retail center? Can they demonstrate a loss of actual business income that is separate from either your typical rental income or your personal income, right? So business receipts, financial statements, different. However you underwrote your borrower will probably be kind of the similar methodology here of determining the backup documentation side of it.

So let's assume they've submitted a formal request to you. They've demonstrated a true what I would call COVID-19 need. It's clearly related to what just happened in the past couple of weeks. It's not because their business was declining anyways. They've demonstrated a real need. They're a qualified claim as I would call it. So here's the recommendation from a best practice perspective. First, give a forbearance. I mean, absolutely, these are people that really in a normal market would've done just fine, is out of their control, so you should provide them a forbearance. The recommended forbearance that you provide here is a 60 to 90 day deferral of payments. So for a bridge loan, and we talk about it this in a second here, but an actual deferral payment. So borrower, if you're not already in any program right now, your may payment, your June payment, we're going to let you not make those payments and we're just going to defer the payments during the time of deferral.

There's not going to be any sort of late charges on those payments and there's not going to be any default interest on those payments. Some states actually prohibit the charging of late charge in default interest. So for example, in the state of Nevada, you actually can't charge those if you wanted to. So know that there is actual state prohibitions on even doing this in certain jurisdictions because we don't know when the end is going to be in sight. We don't know whether lockdown orders will go up in May. We don't know the state of the future market rather than entering into forbearance after forbearance after forbearance, our recommendation is to make sure that there are automatic lender discretionary extensions so that you as a lender can simply notify your borrowers. I may continue to extend this period. I will notify you if I choose to extend this period rather than entering into multiple forbearance agreements if it's a bridge product, if it's a short-term product.

Our recommendation in terms of how to deal with the deferral side of what you are doing is that you move these missed amounts to maturity, right? So at maturity you owe us the principal balance because these are almost all interest only loans. And in addition to your principal balance, you're also going to pay us the five past due payments or whatever it is that you end up deferring is the systematic approach that makes the most sense for a bridge product on a 30 year product. We're recommending a catch up window. It's kind of similar to what the FHA is doing there as well is provide basically one year for your borrower to catch up in payments because they're not suddenly going to get massive cashflow and they probably weren't running rich enough to suddenly say is, Hey, we'll give you a three month forbearance, but you owe us those three payments at the end of that forbearance.

They probably are not in a financial capacity to do so. So give them a window to do it. Melissa and I at Rossi Law Firm, we're actually going to be doing a webinar on Monday on this. I think it's going to be at 11 o'clock Pacific, but we're actually going to get very much in the nuts and bolts about how to prepare forbearance agreement. What provisions are in there, which ones aren't. I think John and Ray already touched upon this, but this is not a time to be sloppy in your formalities. And the reason why I say that particularly is you shouldn't be doing emails. Definitely be worried about what you say over the phone without a follow-up email or at least a follow-up letter to your borrower. Because what we know from the previous crisis is that the spike in litigation that came from the previous great recession was that the borrowers making claims that they talked to Ray on the phone and Ray promised them that he would extend the loan for 60 days and there was nothing ever that followed up in writing.

And so they dera, they stop the foreclosure and they say, look, we can't summarily dismiss this argument against the borrower. We're going to give them the benefit of the doubt when it comes to litigation and we're going to see whether we can pencil out facts to prove this to be true. So effectively you push out what should be summarily dismiss litigation. For example, if you had a forbearance agreement in place that's signed by the parties where you could say, look, we had one agreement, it's in writing, it's signed by both parties, it's one conclusive piece of evidence, that's all we really need here. Versus trying to patch together what exactly happened when you were on the phone with John the other day. So make sure that you do not slow down on your formalities right now, and in fact, tighten up your formalities more than ever.

When you're dealing with these situations, even though you're getting inundated with more requests than ever, it's not the time to be sloppy. So we talked about these covid specific claims where you know have an issue and you know that they deserve, but there's also issues in which I would say there are partial hardship, so their tenants are partially paying them or there are situations in which you don't need to do an absolute deferral, and here you can be a little bit more flexible. So for example, other options that we see people using that make sense in situations in which the borrowers have a partial hardship, one is requiring partial payments, right? So you may have partially amortized loans that are occurring right now or partial interest payments. I think I heard a little bit about using, for example, using construction holdback funds to pay for interest payments.

You can be a little bit creative here in situations in which there are alternatives to just simply providing an all out deferral we talked about. There's another option on here, for example, waiving the payments but still effectively keeping the loan in a default status saying, look, I'm not going to foreclose on you. I'm not going to do any further action on this in a major way, but I am going to continue to charge default interest. So remember that there may be prohibitions on this approach in certain states. And the last one here is what I would call unqualified claims. And oftentimes, as you'll probably see is unfortunately we are in a world in which there is hysteria and there is similarly misinformation, and so you'll likely have people taking advantage. If not, I'm assuming many of you have already had this, where people are constantly calling saying they're demanding that you have to do this for them.

They don't want to provide you a single lick of evidence to do it. And when you ask for the evidence, they provide back the fact that, oh, by the way, they're still getting paid by their tenants. It's either purely out of fear that they're acting or they're acting in a selfish motivation or worse yet it's just a fraudulent claim in the first place. So if you're dealing with situations where you know that there's no merit behind the situation, don't do nothing. That's the biggest takeaway that I hope you walk away with is act in those situations. So if you're going to deny either a oral request or a written request, deny it in writing for those that are truly unqualified. And so let's say for example, you have a person who's still getting the rental income, there's no real need for this forbearance yet they're still demanding it and they're saying, you know what? I'm not going to pay you this month. We would actually recommend coming pretty hard at that point and actually sending out a demand letter and proceeding with the foreclosure action to the degree that you can, right? This is not a time to be passive either in the marketplace. You do very much want to be an active portfolio manager in these situations as well. So be very giving and generous for those that deserve it, and similarly be very proactive for those that don't.

Kevin, why don't you talk a little bit about, particularly for those that are managing portfolios, kind of what they should be doing right now.

Kevin Kim, Esq.:

Right. Thank you, Nema. So I just want to remind the audience, just like we want to come together and have best practices for these foreclosures and these forbearances and act as an industry united, it's important that we also keep that in mind for our investors because the last thing we want is the regulators have to go through legislative rulemaking process. The SEC does not necessarily do that. They can basically take action against a lender or an industry at a whim. You saw that in other industries like the EU five industry where basically they started watching it like a hawk. The last thing we want is for predatory sponsors to really make things difficult for their investors. So this part is really talking about managing your investors expectations when it comes to these increased levels of forbearances and deferments. This will definitely impact your investors' returns.

If you're in a fund format with discretionary capital, it will definitely impact monthly or quarterly payments to your investors, especially if you creep up on a two to three month forbearance situation. And while concentrating on loss mitigation strategies is going to be immensely important, you have to keep your investors in mind in writing and verbally, just like Nema said, it's not a time to forget about formalities. It's not a time to forget about communicating. The number one reason why we see regulatory action against sponsors, lenders, fund managers, what have you, including both state and federal, which leads to litigation is always that the sponsor forgets to deal with the investor issues and they focus on something else. Maybe it's by mistake, maybe it's intentional investors. The biggest reason why investors sue is because they didn't know that. So making sure you stay in touch with your investors about a few big things, making sure that you're modeling, modeling out best case, worst case and realistic case scenarios based off of the forbearance requests you're getting and the impact on the fund utilizing the tools you have if you work with a third party servicer.

Getting those portfolio reports right associated with how it's going to impact investor returns, how the portfolio will perform over a certain given period of time right now may be problematic, but this may work out long-term. Have that information at the rate. Don't just go off of short sound bites, have the data ready because your investors are going to be a mixed bag of people. Some people are going to want to see the data. They need to see the data to feel comfortable. Others will trust your judgment. Also in gathering that data and crafting that data to demonstrate what the situation currently is and what it can become and what you hope it will become. Also, outline very specifically and very confidently the strategies you plan to take to overcome the current challenges you're facing and succeed as this virus. As we bend that curve down and we go back to life as normal, one thing that we tell folks is with investors, the most important thing you can do is be available to them.

You're, you're going to get a lot of calls, you're going to get a lot of requests. You're going to get a lot of requests for information. You're going to get some investors who are panicking. It's on you as the sponsor to make sure that you are communicating regularly, conveying a sense of confidence, but also giving them the information that they are entitled to, but also that you feel they deserve. Giving them peace of mind, if you will, that your plans to mitigate the losses both short and long-term are going to work out for this investment. Now, for those of you who are fund managers also, this will all inform your decision to make decisions about suspending redemption requests and possibly even suspending distributions during a certain pay period. And that's a fact-based decision you have to make. We recommend that you consult with counsel and also your CPA about what the best practice there is and how this is going to impact maybe the increase of your reserves.

We cannot advise on that during this webinar, but best practice in that situation would be make sure you have your reports. Don't be going off of some Excel spreadsheet that you created last week or last month. Have your reports ready, have your performance data ready. If you don't have the tools in place, get them right now because if you don't have that data ready right now, you're not going to be able to combat and fight off challenges you get from activist investors. Now, I do want to touch on the fact that if you are not a fund manager, but you're still dealing with investors, if you are offering fractional notes or co lender, co lender loans, if you are offering investor notes secured or unsecured, if you are dealing with a large family office investor, these things are all still very important. Making sure that you have the necessary data points to present to them to explain to them, this is the impact, but this is what we're going to do to protect your capital.

These are the things that may hurt in the short term, but trust us, we are on this. And earn that trust of course, and making sure that they can believe in your strategy. So if you are just presenting them with a short letter without availability to walk them through it, maybe a zoom call with your investors or maybe a webinar with your investors being available for phone calls, that is going to take you further. So if anything, best practice here is going to be available in person, communicate in writing, and verbally and provide the investment data that they so rely upon in making their decisions. Now in operational operations is also going to be, as your forbearances creep up, you're going to want to start thinking about increasing your reserves if you have a fund, and also thinking about making the decision to suspend redemptions or withdrawals because you have to think about preserving capital. So that's really it for me. If you have any questions on this, we're going to be doing a more detailed discussion on this in a webinar later this week.

Nema Daghbandan, Esq.:

Thank you, Kevin. And on that note as well, for those that have been getting value out of this, here's a little cheat sheet of various resources that have already been compiled. So AAPL has, we talked about it earlier that Eddie talked about at the beginning of this, which is their member dashboard. Make sure that you are updating your member dashboard. So a lot of you are currently reducing your LTVs, maybe increasing your yields, and so it's a good opportunity to really go back and take a look at your member dashboard because right now they're getting lit up on the AAPL side with these requests, and so it would be a good opportunity try to redirect capital. That's a lot of Kevin and I right now is, I would say on an average day we're probably getting five requests of, hey, trying to redirect this loan that I was having a hard time placing before.

So no, that's a huge need in our marketplace right now. So to the degree that you can keep your website and your profile and these things refreshed, I think it'll really help out to kind of redirect capital sources, at least in the interim. Additionally, AAPL has their COVID-19 page, which is fantastic. They've got a ton of resources on there. Some are articles and related materials that relate to our industry, and some of 'em are just resources like we talked about earlier in the presentation. We will distribute the forbearance request form through an email after this, but it'll also be on their resource page as an example. Lastly, as here at gisi, we have our own COVID-19 page as well, and that website's up there as well where we have news articles and similar resources for the industry. Lastly is we've got a ton of webinars coming up here.

So on the bottom of the screen you'll see a list of webinars that are all coming up. Kevin talked about his, that's coming up on Thursday. Similarly, I talked a little bit earlier about how to the degree you're going to want enter into a forbearance, we actually need to do what I call forbearance agreement one oh one. What are the exact mechanisms and how does a forbearance agreement work? What provisions do you want in there? What do you want to do to draft a good forbearance agreement? So we'll be presenting on that next Monday. But again, list of available resources and webinars that are coming up. So at this time, we'll go ahead and open up the floor for questions for a few minutes here. If you have any questions you want to ask to any of the panelists directly, we've got everybody's emails sitting up here as well.

As we already discussed, at the bottom of the screen, there is a q and a box. That's by all means, the best way to communicate. I know some people using chat and other features are raising your hands. Those are all kind of challenging to use from a panelist perspective. So please do insert any questions you have in the q and a box if you want to direct them to a particular panelist. Please state in there the panelists that you would like to answer that question. All the panelists will be able to see all of the questions that are sitting in there, but we'll go ahead and start answering those for a few minutes here before I want to be cognizant of all of the panelists time as I know that they've probably got other busy things that they need to attend to as well. So the very first question that I see in here is the question is directed to Kevin or nema and it stated that, John mentioned that John Beam mentioned that they are inputting legal disclosures in their documentation to borrowers on forbearance agreements to help ensure that the borrowers cannot later use that against them.

And so John, actually it's probably a good question Before we answer the legal side of this, John, why don't you talk a little bit more about what you're doing with your borrowers when you're actually granting this request to kind of CYA little bit?

John Beacham:

Yeah, well I think hopefully everyone can hear me. I think it's very important that first of all, you make sure you're not communicating over email or verbally. I think a lot of people have said that, but that's why we have a standardized form system. Make sure everything's kind of written and documented and standardized. It really depends on the nature of what you're granting. If you're ultimately granting something that's a waiver now, not the lawyer, but ultimately if you're granting something, it's a waiver of terms you're otherwise entitled to waiving default interest, waiving a away fee, things like that. Or I think even taking a construction draw and applying that interest, applying that towards the interest payment. That's the kind of thing that you can do without an actual modification to the loan document typically. So you could do that with some sort of written agreement between you and the borrower.

If you're doing something, you actually change the terms of a loan document like deferring interest, forbearing, those kind of things require a more formalized change process. We actually have to amend the document typically and get that recorded or certainly get that amended. So I think it really depends on the nature of what you're ultimately doing in terms of how you document it. I think our perspective is that, listen, if we're here trying to help you as a borrower and so we're giving you some sort of relief on your loan, we're really trying to do the right thing. Even obviously the process of going through is trying to do the right thing. So we expect that you in return, agree not to sue us for that and agree to waive defenses against us in the event that we have to go enforce later after you don't hold up your end of the bargain. That's kind of our perception how we think about that.

Nema Daghbandan, Esq.:

Appreciate that John. And from the legal standpoint, and we'll go into great detail on this on Monday's webinar, but one of the things that John just alluded to was in a typical forbearance agreement you will have a waiver and release provision where they are actually releasing you of claims and defects in the underlying documents. It's also an opportunity to cure up any of those defects that you may be aware of. So there's a lot of protection that you can add and a lot of value you can add to the lender as well. And the process of doing so, this is a kind of generic or a general question, but it's probably I would say is good for Ray or John here. I don't dunno if you have any insight on it. I can tell you just a little bit of an insight that we have from the law firm perspective, which is effectively is what have you seen from a pricing and or leverage perspective that has changed now in terms of what we are seeing of the, so one is origination volume is clearly down.

Two is that the, from a loan to value perspective as well as rates and terms, we're seeing more of a trend, and Kevin said this earlier, which is I would say is what was probably 75, 80% loan to value previously is now really closer down to 60, 65%. So we're seeing a dropdown on the risk being taken in terms of the cost of credit ranges. California is still probably in the low single digits, or sorry, the high single digits, maybe venturing to low double digits outside of California. You're starting to see pretty healthy double digits. I don't know if John or Ray, if there's any kind of insight that you're seeing on your side.

Ray Sturm:

I think beyond just rate and leverage, you're seeing a flight to quality. So you're seeing higher experience thresholds and liquidity requirements and liquidity that I'd hit on that in two different ways. One is the borrower, him or herself about interest reserves and draws and the ability to actually escrow larger pools of capital. On the other side of liquidity is market liquidity where there's a lot more sensitivity to doing loans today and markets that don't necessarily have days on markets that historically have dragged out and that everyone here agrees is going to take even longer. So beyond just the leverage and such, those are the two things we've seen too.

Kevin Kim, Esq:

I want to comment real quick. There's also, it's a lot of repeat borrowers. It seems to be the trend as well. People are going back to their trusted community of borrowers as opposed to working with a brand new borrower they don't know from Adam.

Nema Daghbandan, Esq.:

Great. The next question here is don't the loan servicers handle the inquiries eligibility loan mod, et cetera? And I think that's right that the first line of defense in a forbearance typically is a loan servicer, but most loan servicers are simply going to go to the underlying investor and say, what would you like me to do here? So generally speaking, the loan servicer does not have a discretionary authority per se about what they will or will not do. And so to a great degree, oftentimes the investor is being asked and then oftentimes the investor has their own investors and on and on you go. So ultimately there is a strategic component and it's typically not the lender's pure discretion. I know John and Ray, you guys get a lot of, have to probably talk to five people and figure out how do you want to deal with this?

John Beacham:

Yeah, I think the thing I would add to that is that the loan servicers definitely the first point of defense and I think they should be the first point of defense. The reality is a lot of the loan servicers aren't staffed up to deal with the volume of requests that we're seeing right now. And as a practical matter, we want to be responsive to our customers and give them or the borrowers and give them some relatively quick response time. And so we've implemented the process. We have our staff basically supplementing the servicer to make sure we're able to practice get back in time because by time the servicer who was staffed up generally for a different type of market environment is adapting to all the for forbearance requests that are coming. Oftentimes they're not able to get back to people in a quick fashion. So we want to be responsive and have basically augmented use our staff to augment the servicer in those cases

Ray Sturm:

On our end servicers take the requests in, but we haven't actually given them the authority. So we handle all of that in-house actually the decision making and analysis ourselves.

Nema Daghbandan, Esq.:

The next question here is if I do give a borrower a forbearance, are there any legalities I should observe talked about earlier is yeah, we will have a webinar just on Monday alone on this one, which will probably answer any questions you've got there, but it's a pretty legally intense process. Next question is for John. John, are you seeing a difference in requests between different types of borrowers? Are more borrowers that own rental properties or bridge borrowers reaching out?

John Beacham:

Yeah, we definitely are. I think I mentioned in my beginning part that we're seeing about forbearance requests from about 4% of our bridge portfolio and about 15% of our rental loan portfolio. So it's substantially higher three to one roughly in terms of rental loan requests and the percentage of the loan balance we have relative to bridge loan requests. And as I mentioned, it's really strange. I know there's that article in the Wall Journal said that 30% of renters aren't paying. It's a very, very misleading article because really you have to look at what percentage of renters normally don't pay at that time of the month. A lot of renters pay late. So I think when people are projecting forward, at least April payments, people think somewhere between eight and 10% of renters more than normally don't pay are ultimately not going to pay in April. Are sort of the estimates I've seen across the United States as a whole. So when you have 15% of rental loan borrowers asking for a forbearance and only eight to 10% of renters are actually not paying, you obviously have a big disconnect there. So that just goes the underlying point of the need to really validate document, make sure that the borrowers actually have legitimate need and aren't just granting forbearance or people don't have legitimate need.

Nema Daghbandan, Esq.:

This is an interesting question. I'd actually be curious to see if anyone else has input put on it. So the question here is we have relief of stay on a commercial loan in California, which predates covid by a year and we can't get it right. So I'll summarize the imperative issue which is in the state of California, I'm sure in many other states there's actually no legal prohibition on foreclosures for business purpose loans. So if you wanted to, you could complete a business purpose loan foreclosure in the state of California. That said, most trustees, including GSI law firm as a trustee, we refuse to actually proceed to foreclosure because we don't think you can have a public auction right now and if you can't have a public auction then it's just ripe for litigation and so you're going to get sued over this foreclosure anyway, so it's not worth it to take it to foreclosure. But the real question here is, and I think that I'd be curious to see if either John or Ray or you're kind of exploring or thinking about or going down that line is moving to potentially online auctions or trying to figure out a systemic approach to what happens if we have a world in which we can't really hold public auctions. I don't know if it's even something that you or your servicers are having conversations with.

John Beacham:

I think it's a broader issue than that. We're seeing a lot of jurisdictions, we can't record mortgages there. Certain county clerk offices are closing and loan process or notaries aren't able to show up. So we're having these e notary acts. I think it's a bigger issue that's sort of affects the entire country honestly. And I think it sort of goes to our system which has a lot of improvement, a lot of elements for improvement in our system. More generally, it's a very estate system, it's a county based system. They're all a little bit different. I think there is a lot of need to have online auctions. I think there's a lot of opportunity coming out. This sort of improve our system really to go to electronic registry for nodes, electronics and recording of things and just get away from the current system we have in a lot of different ways. I think that's probably, hopefully something that comes out of this process is that we all recognize that we're sitting here in 2020 and we're still using mortgage recording practices that are designed in a lot of places in laws. They're actually developed in the late 18 hundreds. I think it's time to update a lot of that more generally including with regard to foreclosure practices.

Ray Sturm:

Yeah, Nema, I think you touched on this during your part of the presentation, but whenever you're going down any sort of recovery path, you want to take as many parallel strategies as you can not do these one at a time. And so for us, auction's certainly an issue, but it's one of many and that one is currently shut down. I think it's just that much more of an emphasis of why you need to do multiple strategies at once, not count on any one path and push that through.

Nema Daghbandan, Esq.:

Alright, next question here is for your bridge borrowers, how do you ensure that those who are mid-construction are going to maintain their motivation, particularly I'm assuming they've got concerns about LTVs and whether they're going to, it's a truly a viable project. Are they working on something that they're never going to realize a dollar on? So how are you managing make construction projects in that communication? Great question for either John or Ray here.

John Beacham:

Yeah,

Ray Sturm:

Go ahead John.

John Beacham:

Yeah, I'll take it as John Beacham. I think this is a critical issue for our entire industry. Getting projects done, getting work done, once again to the extent locally possible and people aren't getting sick and also legally possible in the area is critical for all of us. Having a mid rehab property that sits empty for a year is not going to help the bar, it's not going to help the lender. It's definitely not good for anyone. I'll tell you on our portfolio on average, the difference between the day one LTV and the LTV after the project is done is about 10 points lower leverage. So getting that exit LTV is the way to ultimately create liquidity in that property and ultimately getting an owner occupant into it. So how do you motivate people to go do it every single way we can. First of all, we start with telling them we're going to fund your draws.

So a lot of 'em have questions, are you really there? Do you have liquidity as a lender? Are you going to be able there to fund our draws? The answer yes, we're going to fund your draws enthusiastically and willingly because we want to help get this project through. Number two is doing everything we can throughout the negotiation process. We're giving you a forbearance part of the deal may be that we expect you to complete work on that project and make progress in that. Last thing we want to do is give up interest for a few months and have that project to sit there and so deteriorate in value. So there's a lot of techniques you can do and that's another example. Another thing we can do is we actually monitor across our portfolios, people who aren't drawing rapidly and they're slowing down their draw volumes.

What can we do to get in there and call up the bar actually, Hey, is there something we can do? Obviously they're in a desire zone and they can't do the work. We understand that in a lot of cases there's something we can do and it's some encouragement we can do to actually get them to do the work. So that's another effective motivation tool we have. But at the other day, at its core, this is a partnership between the lender and the bar. Both of us are incentivized. Both of us are aligned to get the project done, get it to completion, get it to a sellable state. That's going to be the best recovery and the best result for everyone in the whole process. So I don't think we're misaligned with the borrower. We want to encourage them and actually have them understand that economic reality.

Nema Daghbandan, Esq.:

And Ray, I think you had thoughts as well on this one.

Ray Sturm:

I think it's a pretty straightforward answer. John nailed it. Pretty much the only thing I'd add is this is one of those things you can't start to address now this has to start at your underwriting. It's one of the reasons why we don't care how experienced a borrower is. We're never going to do those 90%, a hundred percent LTV loans. You need skin in the game, things change in markets. This is a drastic example of that. It's not something we saw coming of course, but it's an area where just based on your leverage ratios, things shouldn't be coming down so far that this person has no skin in the game. If you're a good partner that's out there and you're aligned in improving the collateral, that's ultimately what our focus is. There should always be room for this.

Nema Daghbandan, Esq.:

Alright, the next question here that we'll hit on is, and this is actually an interesting one and kind of a question and a commentary, and I've seen this come across in a few, both the chat as well as in the q and a box here. So really is why should we self-regulate and isn't regulation going to happen anyways? Why do we need a coordinator response? And also how are we going to make sure it's not like we're not forced to be part of a PL or any other organization? So does this really matter? Right, I think is the best way to describe it. And I would go back to what I talked about earlier with the reason that we're doing this in the first place is a week ago, this was just a conversation between John and I about the industry and what's happening in the industry and where it's headed.

And he really had the wise words there of we should have this dialogue, we should have this conversation about what are we doing? And it shouldn't just be a, well, this is what I feel like doing. This is what I think it really should be. A guided discussion and really leadership should take place right now about what are the best practices. What's really different right now is post great recession. The void left by the banks was the proliferation of the non-bank industry. I don't think federal regulators understand the size and scope of this industry. And I think that what was a small blip will become a much larger pinpoint. And so the short answer is nothing. Whether you want to self-regulate, we don't know and we can't control and there's nothing we can do about it. At the end of the day is like we said, there's no federal law or state law to a great degree that's going to require you to act one way or another.

It's these sorts of presentations that I think hopefully says, look here, what are the best practices? It's the distribution of that content out there. Like we said, we'll follow up this presentation with an actual best practices guide along with the forbearance request form and hopefully is when you get that email as you're forwarding it off to every person that as well, it's a self-preservation method. So we don't know. We don't what the result's going to be. We don't get to control that whatsoever. But at the end of the day is it's in your self-interest for those that are listening to be generous for those that need it right now because there's going to be a regulatory response to this. And I think the level of response will change based on how the marketplace response. And so if you have a ton of lenders, and I just know this from first house experience, we're talking to clients who will say our policy was a blanket no policy. If we all just responded in that same way, I think you dramatically increased the regulatory response. And John, I'll get off my soapbox for a second, but I know that this is something you were very passionate about.

John Beacham:

I cannot feel more strongly about this issue. I think it's absolutely critical when you ultimately, if you've talked to a politician, if you've talked to a regulator, if you've talked to a legislator, the first question they're going to ask either you if you're in that position or any of us who are ultimately going to be the people talking to them. It's what did you do as an industry? How did you act treat people when you act responsibly during the crisis? Did you have an industry association actually created best practices and encourage people to do the right thing or do we have the reputation of doing things are unfair, being predatory and treating borrowers unfairly? And I guarantee you, if the answer is number one, the odds of us ultimately maintaining our non-regulated status in industry will be radically, radically higher than number answer is number two.

And so it's an all of our interests collectively to do the right thing to be fair to people so that ultimately we maintain our status. And honestly, this industry becomes regulated. A lot of you people on the phone who are running little funds who are selling loans to people, that business going to go away because banks will come in, they'll compete with all of us. The pricing in this industry may change over time, who knows? But it will change the nature of our business and a lot of people who are on the phone are going to be losers if that happens. So it's definitely not in anyone's personal interest, I think for regulation to come to this space for anyone.

Eddie Wilson:

I want to jump in too just for a second. I mean, you and I spent so much time in Washington and at the state level, the void that was left because of the great recession and how the banks exited the market and this vacuum is created for private lenders, allowed us to jump into the space at a very high level, but it also gave us exposure that maybe we didn't understand. And so what happened was is all of us that were lending and myself included small private lenders and you're just lending funds and doing it without self-regulation or without a common voice, we begin to get isolated out. One bad actor becomes the norm for the regulator as a positioning statement to create legislation. And when collectively we come together with one voice, we can say, okay, yeah, there may be one or two bad actors over there, but as an industry, this is the path we've chosen forward.

That's what Nema you were talking about is like, here are best practices. And when we can have a list of best practices, we're standing in Washington, it helps us solidify the fact that this truly is an industry and the majority of this industry is doing what's right. They're being kind. They're servicing a need in the marketplace. They're not a majority of bad actors. It's not predatory activity all around. So just again, I can't echo that anymore just to say it's really important that we have one voice and we choose these paths collectively together and chime in to say, this is the best practice and this is the standard we want to hold and an industry because we will answer for our actions.

Nema Daghbandan, Esq.:

I really appreciate it guys, and we're now 11 minutes past due on this one, so I do want to be cognizant of the speaker's times here, so I really appreciate it. John. Thanks for the great idea. Thanks for kind of teeing this thing off. Eddie and Linda and Kat, just thank you so much for the support of a PL. This was just a thought last week and it became something that we were able to realize and actually get a webinar together and get this panel and it's just really thankful for the industry here. Ray, thank you for just jumping on this one, your phone call away. We're just so fortunate to have partners such as yourselves out there and really thankful that you guys were able to do this on such quick turnaround. There's a few other questions in here. We'll direct these offline and I'll send these off to people where they can respond directly out there. The webinar will be sent out. A copy of this webinar will be sent out after the presentation, along with the forms and along with the best practices guide as well. We've got a series of other webinars and other stuff coming out there, so there'll be more content on that side. But really just a huge thank you to everyone on the call here and particularly in the speed and efficiency you were able to operate on. It's really meaningful. So thank you.

Ray Sturm:

Thanks Nema. Thanks everyone.

Kevin Kim, Esq.:

Thanks guys.

Nema Daghbandan, Esq.:

Alright, take care. Have a great day, everyone out there. Be safe.