March 8, 2018

Thoughts from the Desk of Bob Repass…

When I recently heard the news that the Reverend Billy Graham had passed away at the age of 99, I took some time to reflect on his life and the inspiration he has been to millions of people across the world. One characteristic rooted throughout his teaching was that of kindness.

Rev. Graham said “Kindness is an essential part of God’s work and ours here on earth.” I thought sometimes we all get so caught up in the chaos of our daily life that we forget or miss opportunities to perform acts of kindness.

That reminded me of a story I had read recently on how President William McKinley would often informally invite confidants to the White House to review the day’s business or discuss the problems of the days ahead. Charles Dawes was often one such guest. In his diary Dawes describes one such gathering:

McKinley was considering the appointment of a minister to a foreign country. There were two candidates. The President outlined their qualifications, which seemed almost identical. Both were able, experienced, honest, and competent. Then he told this little story, an incident apparently so unimportant except for its consequences, an incident so trivial that the ordinary man would have forgotten it. But McKinley was not an ordinary man.

The President said that, years before, when he was a member of the House of Representatives, he boarded a streetcar on Pennsylvania Avenue one stormy night, and took the last seat in the car next to the rear door. An old and bent washerwoman, dripping wet, entered, carrying a heavy basket. She walked to the other end of the car and stood in the aisle. No one offered her a seat, tired and forlorn as she looked. One of the candidates whom the President was considering—he did not name him to us—was sitting in the seat near which she was standing. He was reading a newspaper, which he shifted so as not to seem to see her, and retained his seat. Representative McKinley arose, walked down the aisle, picked up the basket of washing, and led the old lady back to his seat, which he gave her. The present candidate did not look up from his newspaper. He did not see McKinley or what he had done.

The candidate never knew what we then knew, that this little act of selfishness, or rather this little omission of an act of kindness for others, had deprived him of what would have perhaps been an opportunity of a lifetime.

Benjamin Franklin once said, “It takes many good deeds to build a good reputation, and only one bad one to lose it.” In retrospect, I realize as I go through my day, I see many acts of kindness and love, such as a mother smiling as she looks at the little baby in her arms or a coworker taking the time to encourage someone at work.

Don’t miss your chance.

Bob Repass
Managing Director

Stay up to Speed with Eddie

Seller Financed Notes Turn a Business into a Portfolio

by Eddie Speed

There’s a favorite question I ask people to help them focus their core business principles. It’s only three words: What’s your “why?” It helps people think deeply about why they work so hard at what they do. Then once they’ve pinpointed their “why,” I ask them: What’s your “how?” It doesn’t do much good to have a goal if you have no idea how you’re going to reach it.

Your “why” might be to have the financial freedom for traveling with your family, or playing golf, or digging water wells in the Congo. When we get around to talking about your “how,” people often say their how is to build a business in real estate.

With most real estate deals, one deal nets you one paycheck – then you have to shake the bushes to chase the next deal. For example, if you flip a house, you get paid once. Or if you’re a landlord you get paid for a year or two until your tenant moves out (not to mention the calls in the middle of the night to fix a leaky toilet). While your space is vacant you get no income but you still have to pay your own mortgage, insurance, and property taxes. But as a note owner, you don’t make payments, you don’t pay for insurance or property taxes, and one deal can bring years (or even decades) of paychecks. So they become owners of a business built on seller-financed notes.


But even with a business built on seller-financed notes, it doesn’t necessarily mean all your problems are over as a business owner. If someone makes the mistake of building their business by creating low-quality notes with high maintenance customers, they have to constantly work and rework their customers to catch up on their payments, or even deal with defaults and foreclosures. Low-quality notes keep them on a short leash to their business. They have to spend lots more hours than they expected, and eventually realize they own a business they never intended to own. This takes time and energy away from the important “why” passions they want to pursue.

This is why I encourage people to consider a different “how” than being a business owner. I suggest becoming a portfolio owner instead. How can a business owner make the transition to being a portfolio owner? It’s done by being more discriminating in the type of seller-financed notes you create. Portfolio owners have the time and financial freedom to take a month off here and there to pursue other passions. A portfolio owner can also live wherever they want.

Imagine owning a whole portfolio of notes that each brings money reliably to your mailbox for 15 to 30 years, and you can see the exceptional wealth-building potential of being a portfolio owner. With predictable checks coming securely every month, you can take the time off to pursue other fulfilling interests.


Today’s market conditions are ideal for entrepreneur-minded investors to build a portfolio of high-quality seller-financed notes. Conventional financing for home mortgages through normal banks is not an option for a huge number of home buyers. Here’s an example: Banks aren’t motivated to pursue mortgages under 100K. This is not an issue in every single market, but in twenty or more states it’s an inherent problem.

Banks and finance companies were initially forced out of this price band by regulations like Dodd-Frank that capped the percentage of fees and points they can charge on mortgage loans. By capping the fees, it meant the banks had to do as much work for a 75K loan as they do for a 300K loan and only make a fourth of the income.  For their own efficiency, they decided not to fool with the small loans and turned their backs on a huge number of people who want to own a home. This is your opportunity as an entrepreneur to step in and fill this underserved niche!

By offering seller financing for this price band, you won’t be a customer’s last resort – you’ll be their only resort! Banks are normally your biggest competition, but in this price band, you’ll have almost no competition! With the high price range mortgages, banks compete against each other to get the customers. But in this lower price range, customers compete against each other to get a note from you. These are the conditions investors dream about.

You have the freedom to keep the notes you create to receive income for years to come, or you might decide to cash out at any time and sell them to companies like our own Colonial Funding Group. When you’ve got paper that performs, it’s good stuff. A good note for you is a good note if you decide to sell it. Either way, your profit potential is huge.


As you build your base of customers, smart marketing leads to finding the best customers. But haphazard marketing leads to a haphazard portfolio.

By owning notes, you’re basically becoming a bank. By being their only option to finance a home, you’ll have your pick of who you want to do business with. Naturally, you have to pay very close attention to what kind of customers you want your bank to have. Since you have the freedom to choose your customers wisely, you can create loans with higher value and more long-term profit potential. If you’re not selective, or if you target customers with habitual bad credit, then don’t hold your breath that you’ll still be making money from your notes twenty years from now.

I’ve seen lots of people who weren’t very discerning when it came to selecting their customers. They ran ads with headlines like, “Bad Credit? No Credit? No Problem!” If a customer can’t make a good down payment, there’s a good chance they can’t make the other payments, either. You’ll end up with problematic, high maintenance notes. When you put out a message like that, people with good credit won’t show up because they’ll figure you’re offering pawn shop interest rates. You don’t want to scare away the very customers you’re trying to reach!

It’s like this. You might be walking around with your family looking for a place to eat, so you walk up to a restaurant and then notice a sign on the door that says, “No Shirt, No Shoes, Come on in.” So you keep right on walking because you don’t want to subject your family to that. The messaging was welcoming to everybody, but it attracted the riffraff and drove away the best customers.

Many of these seller financiers learned from their mistakes, but others didn’t. A smart person learns from their mistakes, but the smarter person learns from the other guy’s mistakes. This is why savvy consumers read Consumer Reports, so they can avoid making the same mistakes other consumers have made.

I was shocked when I heard that only 10% of people who qualified for mortgages through Freddie Mac or Fannie Mae have a credit score of 700 or below, and the 90% who got approved have a 700+ credit rating. This shows how high the bar is for people to qualify. There are plenty of honest, hardworking folks with a proven history of paying their bills who are getting left behind. They’re not bums but they’re getting treated like it! Nobody, including the bankers or politicians, wants to talk about this problem, but it’s the elephant in the room and it’s shocking to me. With a gap this big in the marketplace, you’re sure to find qualified customers the banks have turned down.

To build a portfolio of high quality, trouble-free notes, you’ll need a good filtering process to find people who can make a good down payment and have a history of paying their bills. And remember, just because a person can pay their bills doesn’t mean they will. There are lots of chronically bad payers, and you don’t want them as your customer.

One big segment of customers I encourage my students to pursue is home buyers who are here in America legally but aren’t yet citizens. They didn’t sneak in, and they’re not bad people; they’ve come to America to make money and pay their income taxes, but they have a much tougher time getting approved with conventional financing. Another big segment to pursue is self-employed people because they have a harder time getting approved even though they’re hard working and have a good income.

One more segment to pursue is people with self-directed IRA money who want to use the IRA as a down payment to buy a rental property, they pay a big down payment and seller financiers do the rest (although they can’t legally use their IRA money to buy the house where they live or a vacation home).

You’re looking for great people who have simply been left behind by the big banks. Your ideal customer is a trouble-free borrower with no irritations. They can make the payments on their house, along with enough for taxes and escrow, plus they take good care of the property to protect their own investment. Every year that they pay, they’re better than the year before. The longer they pay, the more future income you’ll get from this one transaction. This caliber of a customer is definitely out there, and this is how you build a high-quality note portfolio. By filling the gaps wherever there is an underserved market you’ll have the opportunity to provide home ownership to lots of people who deserve it and you’ll make money in the process – a huge win/win. If your “why” is helping people, seller financed notes are for you.

I hope you’ll benefit from my 38 years of seller financing experience. Find your “why.” Find your “how.” If you do it this way, you’ll fulfill your “why” down the road. Money doesn’t solve all problems, but with a focused goal and smart strategies, you can build phenomenal wealth with a predictable business model – which is a great legacy to give your family.

The Trading Corner “4 Reasons Banks and Hedge Funds Sell Nonperforming Loans”

One of the first questions an investor who is thinking about getting into the nonperforming loan space asks is something along the lines of “why do the bank and hedge funds sell their nonperforming loans?” Here are four reasons they do so:

One reason is to Redirect Resources and Reduce Overhead Costs. Servicing special high touch assets is highly resource intensive i.e. it takes a lot of staff. It also distracts from the main lines of business. Liquidation of problem assets allows the company to redeploy capital and human resources to profitable relationships and core markets, as well as to reduce the high costs associated with servicing these high maintenance assets.

Another reason to sell off NPLs is to Improve Their Balance Sheet. Nonperforming assets drag down asset quality ratios and can lead to increased regulatory pressure. Loan sales can be an efficient and cost-effective method to improve the credit quality of their balance sheet.

It also allows the bank or hedge fund to Optimize Recovery for Distressed Assets. Sales of nonperforming and subperforming loans create more predictable outcomes for assets that currently have uncertain or nonexistent cash flows. By liquidating these assets, these institutions avoid unforeseen variations in cash flows, recognize present value and create needed liquidity.

And finally selling NPLs provides an opportunity to Rebalance Their Portfolio. Loan sales enable firms to rebalance their portfolio, reduce exposure and portfolio concentration in areas such as asset types or specific geographic markets, as well as to manage duration risk and yields.

Our experienced team at Colonial Capital Management keeps these strategies in mind on a monthly basis and these were a driving factor behind the creation of the on-line trading platform to enable smaller capital funds the ability to more efficiently sell distress assets.


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Capital Markets Update

State of the Housing Market in 2018

By: Ryan Parson

With 2018 well under way, the housing market continues to show few signs of slowing down, although there are hints of developing headwinds. While it’s true that housing prices are very much geographically based, across the entire U.S., experts are predicting home prices to rise about 4.5 – 5.5% this year.

Current State of Housing

  • According to the U.S. Census Bureau, home ownership stands at about 64%.
  • At the end of 2017, the median home value in the United States was $203,400.
  • From 2012-2017, the median sales price of existing homes has increased by the following amounts: 6.6%; 11.4%; 5.8%; 6.5%; 5.1% and 5.8%.
  • The low inventory has driven up the median home value by 48% since 2011.
  • Existing home sales are projected to be unchanged at about 5.6 million after rising 6.3%, 3.8% and 2.7%, respectively, each of the past three years.
  • At the end of 2017, existing home sales hit an 11year high despite just a 3.4-month supply of homes on the market, the lowest since 1999.

Forward Looking Thoughts 

  • The Pending Home Sales Index, a forward-looking indicator based on contract signings, moved by 0.5% – the index is now 0.5% higher vs. this time last year.
  • The National Association of Realtors predicts home prices will rise by about 5.5% in 2018.
  • The homeownership rate for households headed by people under 35 increased to 35.3% in the summer of 2017 from 34.1% a year earlier, according to Trulia and Census Bureau figures.

Will the Housing Market Cool?

Despite the rosy state of the housing market and even rosier outlook among industry experts, there are some developing headwinds which might cause the housing market to cool.

First, most mortgage experts expect that mortgage rates will gradually climb with the 30-year fixed-rate average reaching 4.5-5% by the end of 2018. Historically, rising rates have slowed price growth and driven home prices down.

Next, a recent Trulia survey shows that for the first time in four years, buyer optimism is slowing: more Americans think 2018 will be worse than 2017 for buying a house as those who think it will be better.

Further, nearly 10% of all mortgages are considered “seriously underwater,” according to the most recent data compiled by Attom Data Solutions. Yes, one in ten.

Finally, remember that statistic that referenced the fact that median home value has increased by 48% since 2011? Well, what if you knew that wage growth over the same period has only increased by 15%?

While we have seen wage inflation the past two years, it’s been largely absent the past decade.

What Does the Future Hold?

The fact is that no one knows exactly what will happen with the housing market in 2018, but looking at the facts can help paint a likely scenario.

For investors, it’s best to be prepared for the coming year, especially if you’re looking to buy or sell an investment property.

In The Spotlight

Register Now for the 2nd Annual Seller Finance Coalition Fly-In

In July of last year, the Seller Finance Coalition’s 1st annual fly-in was a huge success! There were close to 40 attendees from all over the country on Capitol Hill for a day and a half telling the story of how seller financing impacts a consumer’s ability to become homeowners as well as its effect on stabilizing neighborhoods to over 65 Congressional Offices. We will be back on the Hill this April to support HR 1360 The Seller Finance Enhancement Act. Please plan on joining us!

Register now to be a part of the 2nd Annual SFC Fly-In on April 24-26, 2018!

Quote of the Month

“You can easily judge the character of a man by how he treats those who can do nothing for him.”– Malcolm Forbes

This Month’s Poll Question

Do you have nonperforming loans in your portfolio?

Connect With Us

Are you on Twitter? If so, be sure to follow us on Twitter @NoteSchool and @ColCapMgmt, if not, why not?



Bob Repass
Managing Director at Colonial Funding Group
Bob Repass is a 25-year veteran and expert in the seller finance mortgage and distressed asset industry. Over the course of his career, he has purchased over 40,000 performing and non-performing mortgage loans totaling over $2 billion dollars in volume, giving him an unparalleled track record in the industry. Mr. Repass most recently served as the President of Pathfinder Equity Holdings, LLC a mortgage consulting, loan trade advisory and real estate investment firm whose focus is to assist clients in realizing the maximum potential on their investments by improving acquisition returns, as well as loss mitigation and exit strategies.