Confidential & Proprietary
A Mortgage Crisis Rescue Solution
Paulson says GSEs need a new structure
Jan 7 06:15 PM US/Eastern
WASHINGTON, Jan. 7 (UPI) -- U.S. Treasury Secretary Henry Paulson Jr. Wednesday called for restructured
models for the nation's largest mortgage brokers.
The Federal Home Loan Mortgage Corp. and the Federal National Mortgage Association, grew to their
enormous sizes -- holding collectively $5.4 trillion in debt obligations -- in part due to the misconception that
they were government-backed enterprises, Paulson said.
But, with its most recent steps to purchase pump $600 billion into the companies, the federal government has
"gone about as far as we can to avert systemic risk and to use the GSEs (government-sponsored enterprises)
to speed progress through the housing correction," he said.
Since the GSEs fell into conservatorship in September, "almost all new mortgage market originations have
federal government credit support," Paulson said. "This is not sustainable over the long-run," he said.
In a prepared speech before the Economic Club of Washington, Paulson outlined options for moving forward,
including expansion of the Federal Housing Administration and Government National Mortgage Association
and creation of a "Ginnie Mae-like entity for non-FHA mortgages" that would offer a "partial guarantee" to the
industry. Paulson also said a utility-like entity could be set up with pre-established rates of return.
http://www.breitbart.com/article.php?id=upiUPI-20090107-165832-2116&show_article=1 Copyright 2009 by United Press
Presented by:
Venture Funding Advisors, LLC
www.VFundAdvisors
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TABLE OF CONTENTS
Preamble ...................................................................................................................................... 3
The History – How We Got Here ................................................................................................ 3
Current State Of The Industry ..................................................................................................... 4
A New Paradigm for the Undervalued Mortgage Asset Market ................................................. 5
1) How The Land/Property Is Held .................................................................................. 5
2) How The Land/Property Is Financed ........................................................................... 6
Component #1 - Land Trust Ownership & Trust Operating Agreement .................................... 7
The Way The Program Works........................................................................................... 7
Win for Homeowner in Default or Foreclosure ................................................................ 7
Win for Current Lender ..................................................................................................... 8
Win for Government Regulators........................................................................................ 8
Win for NewCo .................................................................................................................. 8
Component #2 - Re-Insured Senior Life Settlement Structured Collateral ................................. 9
The Way The Program Works........................................................................................... 9
General Notes & Information .................................................................................................... 10
EXHIBIT A – Financial Models ............................................................................................... 12
EXHIBIT B - Life Settlements As An Asset Class Securitization Instrument ......................... 15
Brief History of the Life Settlement Industry ................................................................. 16
Specific Information and Criteria on our GIC Collateral Instruments ............................ 17
EXHIBIT C - Links ................................................................................................................... 21
EXHIBIT D – SHIP Diagram ................................................................................................... 22
EXHIBIT E - Relaxed REMIC Requirements Benefit ............................................................ 23
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A Mortgage Crisis Rescue Solution
Preamble
he mortgage foreclosure crisis has become an issue of growing concern over the past two years, one without
easy remedies. While most attention has focused on what the federal government should do to manage the
fallout, states and the private sector can and should play a vital role in the process and solutions.
In short, although many factors contributed to the foreclosure crisis, including fraudulent behavior by some
mortgage brokers and appraisers and deceptive or irresponsible behavior by some borrowers, the roots of the
problem lie not in a handful of bad apples, but in the internal dynamic of an industry that disconnected the
process of mortgage making from properties, and, driven by pressure from the global investment industry, made
ever-riskier mortgages at ever-higher interest rates.
The sub-prime foreclosure crisis has sent ripples throughout the world economy, as foreclosures continue to rise
and housing prices continue to fall, and more mortgage lenders close their doors every day. Thus far, the few
survivors are tightening credit, further depressing the housing market and affecting credit markets worldwide.
The most devastating effects, however, are not on government, investment bankers and lenders but on the
homeowners who took out sub-prime loans, and on the neighborhoods where they live, or once lived – and the
current thinking on government bailout programs will place a heavy burden on the taxpayers into the next
couple of generations.
The History – How We Got Here
State-based U.S. residential finance laws, accommodated by the national mortgage market system, give U.S.
homeowners two free options that contributed substantially to the financial crisis we confront today. First, any
homeowner may, without penalty, refinance a mortgage whenever interest rates fall or home prices rise to a
point where there is significant equity in the home. The right to refinance is very rare in the commercial world
because it increases the difficulty of matching assets and liabilities and thus places significant risks on financial
intermediaries. Because home mortgages can be refinanced at any time, banks and others must engage in
sophisticated hedging transactions to protect themselves against the disappearance of their mortgage assets if
interest rates decline. More important for the purposes of this Outlook, the ability of homeowners to refinance
their mortgages whenever they want also enabled them to extract any equity that had accumulated in the home
between the original financing transaction and any subsequent refinancing. When combined with the gradual
decline in lenders' demands for substantial down payments and the absence of any prepayment penalty, this
option permitted homeowners to obtain in cash at the time of a refinancing a significant portion of the equity
that had accumulated in the home up to that point. That equity, of course, could have been the result of a general
increase in home prices rather than a homeowner's gradual amortization of principal under the mortgage loan.
The result was the so-called cash-out refinancing, in which homeowners treated their homes like savings
accounts, drawing out funds through refinancing to buy cars, boats, or second homes, or pay for other family
expenditures. By the end of 2006, 86 percent of all home mortgage re-financings were cash-out re-financings,
amounting to $327 billion that year. Unfortunately, this meant that when home prices fell, there was little equity
in the home behind the mortgage and frequently little reason to continue making payments on their mortgage.
Lastly, and this is technical but important, the outdated assumption that mortgages are ultra-safe induced
regulators to write a bias in favor of mortgage lending into bank capital requirements: By purchasing a portfolio
of AAA-rated [mortgage-backed securities - typically based on sub-prime mortgages], or converting their
portfolios of whole mortgages into an MBS portfolio rated AAA, banks could reduce their capital requirement
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to 1.6 percent ... In other words, the effect of the Basel bank capital standards, applicable throughout the world's
developed economies, has been to encourage commercial banks to hold only a small amount of capital against
the risks associated with residential mortgages.
It was government policy however that created the incentives to transform individual greed into a social disaster.
Current State Of The Industry
Top Stories Inside Mortgage Finance
December 2008
Latest OCC Data Reveal That
Many Loan Modifications Merely
Delay Foreclosure
A top banking regulator offered
more sobering data on modified
mortgage loans that end up in
default again within a few months
– a problem that could worsen as
the housing market ...
Mortgage Default Rates Worsen
Significantly In Third Quarter,
Foreclosure Pipeline Grows
Mortgage default rates worsened
in every conceivable way during
the third quarter, producing a
growing logjam of severely
distressed loans as a result of
over-taxed mortgage...
Treasury Creates Office to
Explore Loan Mod Options, But
No Plan Yet, GAO Says
The Treasury Department, widely
criticized by Democrats for failing
to use the Troubled Asset Relief
Program to address rising
mortgage foreclosure rates, has
taken a few steps toward...
Fannie Mae Launches Early
Workout Program for At-Risk
Mortgages, Expands
Forbearance Options
Fannie Mae this week announced
a new Early Workout program that
will allow servicers to begin loan
modification processes for at-risk
borrowers even before the loan
goes into...

More than half of all homeowners who had their loans modified to make the payments more affordable
in the first half of the year are already in default again.

“The new data raise questions about whether government money may be better spent on creating jobs
rather than averting foreclosures,” said John Reich, director of the Federal Office of Thrift Supervision. Many
other experts say the bulk of loan modifications don't actually provide much financial relief for borrowers.

“The government's data does not include enough detail about the types of loan modifications that are
being made, and the qualities of the [modifications] are not what they should be" said Sheila Bair, chairwoman
of the Federal Deposit Insurance Corp."

The U.S. economic picture has darkened over the last quarter. One in 10 Americans with a mortgage is
either behind or in foreclosure. The U.S. is on track for 2.25 million foreclosures this year (2008).

Unemployment stands at 6.7%, and is increasing. The worldwide credit markets have improved only
modestly from the freeze that led Congress to approve a $700-billion bailout before the election.

"We need a bottom-up approach, in my view, by modifying people's mortgages and helping them stay in
their homes," New Jersey Gov. Jon Corzine said. Corzine has called for a three- to six-month halt to
foreclosures while the government works out a more aggressive plan.

Mark Zandi, chief economist at Moody's Economy.com, said the public was likely to be more
sympathetic to efforts to assist troubled borrowers, because the link between the foreclosure crisis and the
sinking economy is increasingly clear to most Americans.

Nearly a third of US homeowners who bought in the last 5 years owe more on their mortgage than their
house is worth, according to a report by Internet valuation site Zillow. Prices of houses dropped 9.9% in the
second quarter (2008), compared to the previous year, sending 29% of homeowners into negative equity. Almost
a quarter of the homes sold in the past year were sold at a loss.
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A New Paradigm for the Undervalued Mortgage Asset Market
A myriad of new innovative approaches will be introduced to stimulate the current mortgage crisis. Our
solution herein describes an innovative approach in the current thinking as opposed to a “new horse – same
merry-go-round” mentality that is currently being offered. Our Structured Home Investment Program™ (SHIP)
will challenge in a positive and constructive way, how we do business in this industry, and is critical to
mitigating the mortgage crisis impact on families, neighborhoods, lenders and the government in order to
prevent a another fiasco from occurring in the future.
We believe we can apply our model to new home purchases and other lending scenarios. The application herein
has been designed specifically to Rescue homeowners from foreclosure by acquiring portfolios of nonperforming and under-performing mortgages held by the lending institutions who initiated the loans, thereby
providing them the benefit of taking the caustic mortgage loan portfolio off their books in a short-sale rather
than a foreclosure and not affecting their lending reserve (banks delay the charge off in order to make their
balance sheets appear stronger – see Exhibit C “Loan Loss Reserves and Short Sales”), and providing some of
the up-side from future appreciation of an equity position Our goal is to acquire these portfolios at a negotiated
price with private capital, and hold the mortgages long-term for the attractive IRR benefits.
The Structured Home Investment Program™ has two non-traditional and very unique components:
1) How The Land/Property Is Held.
Current popular methods of holding title or ownership in real estate are as follows:
A. Sole Ownership - Ownership by an individual or other entity capable of acquiring title.
B. Co-Ownership - Title to property owned by two or more persons is commonly vested in the following
forms: Community Property; Community Property with Right of Survivorship; Joint Tenancy and
Tenancy in Common.
C. Other ways of vesting title include: A Corporation; A Partnership; Limited Liability Company and A
Trust.
Note: SHIP deals exclusively in the Land Trust format which is the ownership structure of our model for
constructive reasons to allow for the banker to eventually recoup their heavy losses in the under valued
mortgage.
The two legal documents that provides for the protective covenants of the document are the Irrevocable Land
Trust, and Revocable Land Trust Operating Agreement.
The Irrevocable Land Trust is the arrangement whereby legal title to the property is transferred by the grantor to
the trustee of the Irrevocable Land Trust, which is to be held and managed by the trustee for the benefit of the
people specified in the trust agreement, called the beneficiaries.
The Land Trust Operating Agreement provides for the conveyance of the benefits of equity appreciation, tax
deductible interest and other benefits of traditional fee simple interest ownership. In addition, the agreement has
an automatic 90-day foreclosure clause (thus revocable), allowing the Lender to take quick possession in a
default. The Land Trust, being an Irrevocable Trust, allows for the beneficial interest of the trust not to be
subject to bankruptcy or creditor claims. This feature allows for the beneficial interest in the trust to be
transferred to accommodate a number of benefits without liquidating the guaranteed contracts of insurance and
precipitating unfavorable tax consequences.
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2) How The Land/Property Is Financed.
The finance structure we have engineered is a bottom-up real-estate investment underwriting which utilizes reinsured & guaranteed insurance contracts, to enhance and securitize the mortgage loan portfolio, providing a
viable and attractive mortgage rescue solution.
First, The Land/Property Loan is enhanced by using Senior Life Settlements (SLS), a new asset class
securitization instrument, providing a “structured collateral” overlay (acquired at a discount) which guarantees
the 100% return of the principal of the Loan in a 10 to 15 year term. Second, we then over-collateralized the
portfolio AND the SLSs with additional re-insurance which provides a “self funding” guarantee achieving a
variable positive return to enhance the portfolio and a Term certain for the lender.
These two insurance methods provides the credit enhancement of the mortgage portfolio by providing a true
Guaranteed Contracts of Insurance “GIC” which are re-insured to a fixed date certain term. The result is that the
lender’s cash-on-cash (amount invested and amount returned) risk can be 100% eliminated in a shorter term (10
to 15 years) than the total term of the mortgage (15 to 30 years). The return created by the re-insured GIC
structured collateral can provide financial rewards and benefits to both the lender and borrower. Each unique
component and the benefits of both together, are further described in detail below.
Our Structured Home Investment Program™ (SHIP) solution assumes we identify lenders with large portfolios of
single family homes, which are non-performing or under-performing loans, and that we negotiate the acquisition
of the portfolio or a portion of the portfolio for a substantial discount to the book value. We would offer the
homeowners the opportunity to stay in the home under our new structure as follows:
A.
They Quick Deed the Property to our NewCo Land Trust Company in return for entering into our
Land Trust Ownership & Trust Operating Agreement arrangement.
B.
As part of the incentive, we arrange and agree that they pay no principal or interest payments for the
first 12-months.
C.
Under the most conservative version, the borrower will also participate in the significant benefits of
the GIC returns – when the Principal is paid in full by the maturity of the structured collateral
(GIC), the remaining Principal balance of the Net Loan to borrower will be converted to a Principal
Only loan for the balance of the Term. The remaining payments will be modified to equal
remaining principal balance divided by remaining mortgage term.
If the Principal of the GIC enhanced Gross Loan were paid in full at 10-years (10-Yr re-insured
GIC), they would realize an overall savings of 43% of the typical cost of principal and interest
payments and a 57% reduction in the amount of monthly payments
D.
NewCo Land Trust Company takes an Equity Interest in their Home equal to the difference between
the Net Loan to borrower and the actual market value determined by appraisal. This equity position
is split with the original lender (banking selling portfolio of mortgages at short-sale price). If
NewCo buys discounted short-sale paper at 50%, then NewCo has a 25% position in the equity, and
the Bank 25% as well, which will be paid at the time of sale, or at anytime during the extended term
(upon fair market value appraisal), or a balloon payment at the end of term. Note: If only Mark-toMarket, then NewCo still take a minimum 50 % position in the property.
E.
Through the Trust Operating Agreement, they are provided the benefits of equity appreciation,
deductible interest payments and other traditional benefits afforded to those who own under a fee
simple-interest ownership. However, the Trust Operating Agreement contains an automatic 90-day
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foreclosure clause, upon their default of the terms of the Agreement. If they do not keep their
payments current and default, they lose possession of the property and their equity in it.
Component #1 - Land Trust Ownership & Trust Operating Agreement
The Way The Program Works (see Exhibit D)
1.
NewCo Land Trust Company (NewCo) acquires portfolio of non-performing single family homes from
ABC Bank at a discount.
2.
NewCo sets-up Land Trust for each owner. Current pass due Home Owner and NewCo enter into
NewCo’s Land Trust Operating Agreement. NewCo is legal owner of all Land Trusts and is Trustee. Note:
This option will be made available to the home owner as a resolution to their current situation. The owner
cannot default for the first twelve months since they have no payments to make. This provides for the remedy
of homeowners getting their financial house in order.
3.
If after the twelve month grace period the current owner defaults then NewCo takes quick possession
(90-days), NewCo’s cost of placing a new Land Trust Owner into the property is lower due to no closing costs,
no escrow fees; no transfer title taxes. The property taxes are based on older valuation; The Land Trust can
raise the interest rate and require more money down from new owner.
The Program is designed to help both lenders holding portfolios of bad loans and those current homeowners
who are deep into the foreclosure process to save their properties, offering a workable solution for both. The
bank gets the bad loans off their books; the current owner stays in their home without having to go through the
foreclosure process and has a 12-month grace-period on payments; NewCo acquires the properties at a discount
and is able to place them into a new finance structure where they are guaranteed no further bad loans and only
positive IRR.
Win for Homeowner in Default or Foreclosure
The current homeowner benefits because he/she is offered a constructive and beneficial solutions to allow them
to stay in the property and avoid foreclosure.
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Remains in home
Initial 12-month grace-period of no P&I
Obtains a favorable rate and terms as compared to current mortgage market rates.
An Amortization Term with Principal Only payment, after Gross Loan Principal is collapsed by GIC at
end of GIC term.
No closing costs, No transfer title taxes, quick closings
Easy sale strategies - sell to approved buyer or back to NewCo at negotiated price
Credit rating potentially not affected in a default on the Trust Operating Agreement, since the GIC is
supporting 100% of the loan and remains in place and self-liquidating. Also if they vacate in the agreed
90-day clause term and a new buyer is found, no damage to NewCo.
The mortgage payments may be reduced by hundreds of thousands as they share in the GIC self funding
guarantee Benefits
The homeowner is converted from an interest only or negative amortization loan to a 30-year amortized
loan with special features, allowing them to build significant equity over a shorter period of time.
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

The homeowner also receives a certain amount of their dignity back and has twelve months to bring
down his/her credit card and other liabilities in this time frame.
Note: If homeowner sells, moves or otherwise needs to terminate ownership, the Trust Operating
Agreement provides for the accounting for gains, losses and distributions.
Win for Current Lender
The Structured Home Investment Program™ (SHIP) model is a win for the current lender because it essentially
saves the property from foreclosure and provides some additional upside.
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Saving on legal and REO resale costs
Allows for a write-down, taking the non-performing or under-performing mortgages off the books. Can
be treated as a short sale rather than a foreclosure and therefore does not affect their lending reserve.
Becomes a participant in an Equity Kicker (50/50 with NewCo on their portion of equity – see Page 4
Point D) of the difference between the new book value and the appraised value of the home. As the
equity grows, the Bank at some future event (sale, mortgage term, or borrower option to pay at anytime)
receives a final cash settlement on the transaction. The value of their % equity can be placed on their
balance sheet, again creating a resolution that does not affect their lending reserve.
Agreement to keep the cash flow of borrower payments flowing through their Bank, so they benefit
from the deposits and some float on the funds.
More incentive to go with our plan (become alternative A) for the higher returns than dumping the paper
into the market at steep discounts.
The same process and the benefits to NewCo could benefit the Lender if applied to future New home
loans.
Win for Government Regulators
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SHIP lessens the need for future bailout funds to FDIC guaranteed lending institutions.
SHIP helps restore profits of current bad loans back to the lender and lessens the need for government
intervention and further burden on the U.S. taxpayer
SHIP translates to the less likelihood of government takeover of the lending institutions – risk can be
managed without government intervention.
SHIP helps keep the business of lending where it belongs, in the private sector, verses the need for
government intervention.
The U.S. mortgage market is the financial market most closely linked to the lives of American working
families. For many Americans, their home is their most valuable asset and an important source of
financial security for their retirement. American workers are being hit by a double-whammy as they
lose not only their homes, but also their retirement savings, as pension funds bear the brunt of
overwhelming losses faced by financial institutions…SHIP helps correct this situation and lessens the
American workers total reliance on government Social Security benefits for retirement.
Win for NewCo

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Per “The History – How We Got Here” Page 1 herein, SHIP eliminates or through the Operating
Agreement controls, the right to refinance and extract equity (cash-out refinancing) which is a major
contributing factor to the current mortgage crisis.
Homeowners stay in property longer due to the attractive back-end financial benefits
Has control over property as owner of Land Trust and Trustee of Trust Operating Agreement
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
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In a default can take quick possession (90-days) per Trust Operating Agreement foreclosure clause
Can quickly re-sell under new Trust Operating Agreement to new buyer and collect additional 20%
down.
Cannot ever be upside down and will always be assured of 100% Principal repayment and a
positive IRR
Potential of significant IRR depending on maturity of the collateral and structure of the Net Loan to
borrower
Asset of the Guaranteed Insurance Contract stays on the balance sheet of NewCo
Asset of the Property itself (and ever increasing value) stays on the balance sheet of NewCo
Principal of the Gross Loan paid in full in a shorter term (10 to 15 years) depending on the structure of
the Term of the GIC
No closing costs/Escrow fees; No transfer title taxes; property taxes based on older valuation; can raise
the interest rate and require more money down on a re-sale.
Potential of favorable tax benefits (See Exhibit E – REMIC Treatment Benefits)
Significant Equity in all homes
Component #2 - Re-Insured Senior Life Settlement Structured Collateral
The Way The Program Works
1.
NewCo acquires non-performing or under-performing mortgages from ABC lender for +/- 50% of book
value, and an agreement of sharing future upside in equity appreciation.
2.
NewCo funds +/- 227% of the price of the home through the Structured Home Investment Program™
with 60% going toward the purchase of a portfolio of Senior Life Settlements (Guaranteed Insurance Contracts
“GIC”) that are wrapped with re-insurance, guaranteeing a 10-year fixed term payout of 2X the 60% (120% of
the original price)…see Exhibit B Page 16 for list of re-insurance guarantors. The first year Interest is financed
and deducted from the 40% side (Net Loan to Borrower side) and paid at closing to the benefit of NewCo.
Homeowner begins paying principal & Interest payments at the end of the initial 12-month period.
3.
The Gross Loan is self-liquidating at the end of the GIC maturity term, paying off 100% of the Loan
Principal and yielding a positive, however variable IRR. (see examples Exhibit A). However, during the term
portions of the GIC, it matures at undetermined periods and is paid out to NewCo for accumulated Interest and
paying down the Principal in tranches, with a calculated portion going into a SLS premium management fund.
4.
The combined returns of the GIC maturing and principal & interest payments from the homeowner
provides NewCo an estimated combined 10.49% IRR. When averaged with our example worse case scenario,
per likely maturity on the structured collateral, it would be 9.31% IRR per the modeling, with the GIC paying
100% of the total Principal amount and variable GIC return.
5.
Technically, the assignment of the re-insured senior life settlements to NewCo is on a deficiency basis,
whereby the guaranteed insurance contracts can never owe back to NewCo and amount greater than the original
loan amount less payments received (interest & principal). Although, in our model, it also provides an overhang
of variable profit certain to the benefit of NewCo. As the GIC matures at various times during the Term, the
interest is kept current and the principal is reduced in tranches per each maturity event.
6.
Even though NewCo is investing 227% to construct or engineer the Structured Home Investment
Program™ Loan, the beneficiary of the Trust (60% of the amount) is to the benefit of NewCo – this is an Asset
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which then remains on the books of NewCo, as does the equity value of the asset of the Home until released
upon a sale or termination of the mortgage loan.
7.
NewCo realizes a 10-year Term home loan (on Principal) verses a traditional 30-year - since the GIC
has a 10-yr term certain (in most cases) doubling (cost to face maturity)...through this new asset-class
structuring, the entire principal is self-liquidating at the end of term. This can never again turn into a bad loan
and will always have a positive IRR even in a worse-case scenario.
8.
Being that the proceeds of the Life Insurance may be determined to be tax-free, NewCo could benefit
from an un-taxed windfall at the end of Term, if the funds are re-invested in another Structured Home
Investment Program™ transaction.
In addition, expanded safe harbor rules allow real estate mortgage
investment conduits (REMICs) and REMIC owners to modify certain residential mortgage loans while
maintaining favorable tax status (see link in Exhibit B: What is the taxation implication of a Life Settlement?
And Exhibit E: Relaxed REMIC Requirements: IRS and Treasury Efforts to Address the Subprime Mortgage
Crisis).
9.
The Financial Model worksheet is setup with 16 Variable Input Fields to change the parameters and
modify the Loan outcomes – you can play “What If” and automatically change the IRR in multiple scenarios.
Note: This model is currently available for review by contacting Venture Funding Advisors, LLC and arranging
an on-line “Go To Meeting” presentation. Those wishing to review the Finance Model themselves can do so
upon signing the VFA Non-Compete & Non-Disclosure Agreement.
General Notes & Information:

The example modeling assumptions herein (Exhibit A) is based on a 45% (to face maturity) total cost of
the GIC (SLS portfolio, Premium Management Fund & Re-insurance). The actual cost may differ from this
assumption at the time of acquisition of the collateral portfolio and re-insurance. Should the cost be higher than
assumed herein, multiple adjustments can be made to the model – two of which are: 1) The end of (10-yr) term
for NewCo Net Home Loan portion (the 40%) can be extended for a longer period to cover an increased cost
basis, and 2) the 10-yr Term of the Gross Loan can be extended to 11 to 15 years to cover any additional cost
basis.
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Although the model currently reflects a one home scenario, it is assumed that multiple homes will be
acquired in a portfolio which would require a $100 Million financing. The plan would be to capitalize multiple
$100M transactions.

In the examples, although Column A assumes the arbitrage of the GIC Only and Column B the GIC and
Interest Only - Column C the GIC, Prin. & Int. is the most likely scenario as if a default occurs from the
Borrower, a new Buyer is found which pays ANOTHER 20% down (mitigating and lost Prin. & Int. payments
and completes the Gross Loan Term and a new Net Loan Term.
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Venture Funding Advisors, LLC
8241 Parsons Pass, New Albany, OH 43054
Jim Nash  jrnash@vfundadvisors.com
Email: VFund@InvestmentBankingSolutions.com
Website: www.VFundAdvisors.com
Structured Home Investment Program™ (SHIP)
Patent Pending – Copyright 2008
Confidential & Proprietary
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Patent Pending – Copyright 2008
EXHIBIT A
A Single Family Home
Structured Home Investment Program (SHIP)
Eliminates Future Bad Loans & Provides Positive IRR in Worse Case Scenarios
WIN/Win/Win/Win for Lenders, Borrowers, Government & Communities
Patent Pending - Copyright 2008
28.00%
24.00%
20.00%
16.00%
12.00%
8.00%
4.00%
0.00%
0.00%
0.00%
0.00%
0.00%
0.00%
Premium
Side
Interest
Payment
Declining
Prin Bal.
Pre-Paid
Pre-Paid
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
0
0
0
0
0
120,000
0
60,000
58,800
56,928
54,344
51,004
46,865
41,876
35,989
-1,000,000
-1,000,000
-980,000
-948,800
-905,728
-850,072
-781,076
-697,941
-599,817
-485,806
$180,000
Actual Declining Bal.
w/Interest Added
Premium Payments
Total
Total GIC Return
Less Premiums
Sub Total
+ Initial Pre-Paid Int.
Total
40,000
140,000
180,000
1,200,000
-140,000
1,060,000
120,000
1,180,000
$0
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1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
+
Assumed IRR Scenario
Mark to Market Short-Sale Price
[Policies have an equal or even maturity beginning 3rd Yr.]
Net Cost of Home
A
B
C
$1,000,000
$1,000,000
Gross Loan
Variable Input Fields $1,000,000
Pre-Paid
$440,000
$440,000
$440,000
Net Loan / After
$320,000
$320,000
% to Borrower 40.00%
Interest
-$1,000,000
-$1,000,000
Initial Value or Cost
Gross to Net % 227% -$1,000,000
$120,000 1
$146,400 1
$151,656 1 No anticipated maturity of collateral + pre-paid Interest
% to
$0 2
$26,400 2
$31,656 2 No anticipated maturity of collateral
GIC Trust 60.00%
$115,000 3
$141,400 3
$146,656 3 SLS maturity based on even maturity 3rd Yr forward
$120,000 4
$146,400 4
$151,656 4 SLS maturity based on even maturity 3rd Yr forward
Interest Rates
$125,000 5
$151,400 5
$156,656 5 SLS maturity based on even maturity 3rd Yr forward
6.00%
6.00%
$130,000 6
$156,400 6
$161,656 6 SLS maturity based on even maturity 3rd Yr forward
Percent Down
$135,000 7
$161,400 7
$166,656 7 SLS maturity based on even maturity 3rd Yr forward
0.00%
$140,000 8
$166,400 8
$171,656 8 SLS maturity based on even maturity 3rd Yr forward
Loans Term
$145,000 9
$171,400 9
$176,656 9 SLS maturity based on even maturity 3rd Yr forward
10
30
$150,000 10
$393,441 10
$398,698 10 Balance of Principal Paid in full by GIC
Mortgage Amm
11
$26,400 11
$20,841 11 Principal Only for balance of the Term
30
12
$26,400 12
$20,841 12 Principal Only for balance of the Term
% Cost of GIC
13
$26,400 13
$20,841 13 Principal Only for balance of the Term
45.00%
14
$26,400 14
$20,841 14 Principal Only for balance of the Term
% Yrly. Premium
15
$26,400 15
$20,841 15 Principal Only for balance of the Term
to Face Account
16
$26,400 16
$20,841 16 Principal Only for balance of the Term
4.00%
17
$26,400 17
$20,841 17 Principal Only for balance of the Term
% to Prin. Reduction This Column 18
$26,400 18
$20,841 18 Principal Only for balance of the Term
96.00%
Reflects Net 19
$26,400 19
$20,841 19 Principal Only for balance of the Term
% Annual Increase RE
After
20
$26,400 20
$20,841 20 Principal Only for balance of the Term
6.00%
Premiums 21
$26,400 21
$20,841 21 Principal Only for balance of the Term
% Value to Loan
Have Been 22
$26,400 22
$20,841 22 Principal Only for balance of the Term
140%
Deducted 23
$26,400 23
$20,841 23 Principal Only for balance of the Term
Protected Cell
110.00%
24
$26,400 24
$20,841 24 Principal Only for balance of the Term
Year to Add-In Equity
25
$26,400 25
$20,841 25 Principal Only for balance of the Term
10
26
$26,400 26
$20,841 26 Principal Only for balance of the Term
Yr of Default & New
27
$26,400 27
$20,841 27 Principal Only for balance of the Term
HomeOwner Deposit
28
$26,400 28
$20,841 28 Principal Only for balance of the Term
0
20.00%
29
$26,400 29
$20,841 29 Principal Only for balance of the Term
30
$26,400 30
$20,841 30 Principal Only for balance of the Term
1,000,000 =
$1,180,000
$2,189,041
$2,130,424
ROI
2.79%
10.24%
10.49%
IRR
Balance Ck
Balanced
9.31%
IRR
Blended IRR with Worse Case Scenario
12
Patent Pending – Copyright 2008
% Equity
50.00%
Re-Appraised Net Loan
Equity
RE Value
Prin/Bal.
Profit
$448,000
$440,000
$4,000
$474,880
$434,597
$20,142
$503,373
$428,860
$37,256
$533,575
$422,770
$55,403
$565,590
$416,304
$74,643
$599,525
$409,439
$95,043
$635,497
$402,151
$116,673
$673,626
$394,413
$139,607
$714,044
$386,198
$163,923
$756,887
$377,477
$189,705
$802,300
$368,217
$217,041
$850,438
$358,387
$246,026
$901,464
$347,950
$276,757
$955,552
$336,869
$309,342
$1,012,885 $325,105
$343,890
$1,073,658 $312,615
$380,522
$1,138,078 $299,355
$419,361
$1,206,362 $285,277
$460,543
$1,278,744 $270,331
$504,207
$1,355,469 $254,463
$550,503
$1,436,797 $237,616
$599,590
$1,523,004 $219,730
$651,637
$1,614,385 $200,741
$706,822
$1,711,248 $180,581
$765,334
$1,813,923 $159,177
$827,373
$1,922,758 $136,453
$893,152
$2,038,124 $112,328
$962,898
$2,160,411
$86,714 $1,036,848
$2,290,036
$59,521 $1,115,257
$2,427,438
$30,651 $1,198,393
$2,573,084
$0
$1,286,542
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
Structured Home Investment Program (SHIP)
Eliminates Future Bad Loans & Provides Positive IRR in Worse Case Scenarios
WIN/Win/Win/Win for Lenders, Borrowers, Government & Communities
Patent Pending - Copyright 2008
Premium
Interest
Declining
Side
Payment
Prin Bal.
Note: The Worse Case IRR depicted
Pre-Paid
120,000
-1,000,000
may not be the actual worse case, as
theirPre-Paid
may be an associated0cost -1,000,000
to
4.00%
5,000
60,000
-1,065,000
account for
creating the
side fund
for
4.00%
5,000payments
63,900
-1,133,900
SLS premium
if the GIC
has
4.00%
5,000
68,034
no maturity
until the end
of term.-1,206,934
The
36.00%
72,416be a-1,324,350
methods45,000
of payment would
32.00%
40,000
79,461 -1,443,811
combination of the following:
28.00%
35,000
-1,565,440
1. Borrow
against the86,629
GIC Portfolio
24.00%
30,000
93,926
-1,689,366
2. Borrow against the Home Equity
20.00%
101,362
-755,728
3. Sell a25,000
small portion
of the GIC Short
16.00%
20,000
4. Borrow
from Next Tranche of follow12.00% on Funding
15,000
8.00%
10,000
5. The two
years of Pre-Paid Interest
4.00% in year5,000
one could be diverted to the
0.00% premium side
0 fund.
The IRR calculation$230,000
in this scenario
does however reflect the overall net of
Actualthe
Declining
GIC costBal.
from the Best Case
w/Interest
Added
-10,000
Scenario
Premium Payments
240,000
Total
230,000
Total GIC Return
Less Premiums
Sub Total
+ Initial Pre-Paid Int.
Total
1,200,000
-240,000
960,000
120,000
1,080,000
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
+
Worse-Case IRR Scenario
[All Policies Mature at End of Term or Re-insurance Pays at End of Term]
A
B
C
Variable Input Fields $1,000,000
$1,000,000
$1,000,000
$440,000
$440,000
$440,000
% to Borrower 40.00%
-$1,000,000
-$1,000,000
Gross to Net % 227% -$1,000,000
$120,000 1
$146,400 1
$151,656 1
% to
$0 2
$26,400 2
$31,656 2
GIC Trust 60.00%
$0 3
$26,400 3
$31,656 3
$0 4
$26,400 4
$31,656 4
Interest Rates
$0 5
$26,400 5
$31,656 5
6.00%
6.00%
$0 6
$26,400 6
$31,656 6
Percent Down
$0 7
$26,400 7
$31,656 7
0.00%
$0 8
$26,400 8
$31,656 8
Loans Term
$0 9
$26,400 9
$31,656 9
10
30
$1,060,000 10 $1,303,441 10 $1,308,698 10
Mortgage Amm
$0 11
$26,400 11
$20,841 11
30
$0 12
$26,400 12
$20,841 12
% Cost of GIC
$0 13
$26,400 13
$20,841 13
45.00%
$0 14
$26,400 14
$20,841 14
% Yrly. Premium
$0 15
$26,400 15
$20,841 15
to Face Account
16
$26,400 16
$20,841 16
4.00%
17
$26,400 17
$20,841 17
% to Prin. Reduction
18
$26,400 18
$20,841 18
96.00%
19
$26,400 19
$20,841 19
% Annual Increase RE
20
$26,400 20
$20,841 20
6.00%
21
$26,400 21
$20,841 21
% Value to Loan
22
$26,400 22
$20,841 22
140%
23
$26,400 23
$20,841 23
110.00%
24
$26,400 24
$20,841 24
Year to Add-In Equity
25
$26,400 25
$20,841 25
10
26
$26,400 26
$20,841 26
Yr of Default & New
27
$26,400 27
$20,841 27
HomeOwner Deposit
28
$26,400 28
$20,841 28
0
20.00%
29
$26,400 29
$20,841 29
30
$26,400 30
$20,841 30
1,000,000 =
$1,180,000
$2,189,041
$2,130,424
1.85%
8.00%
8.12%
Gross Loan
After Pre-Paid
Net Loan / Interest
$320,000
$320,000
Initial Value or Cost
No anticipated maturity of collateral + pre-paid Interest
No anticipated maturity of collateral
No anticipated maturity of collateral
No anticipated maturity of collateral
No anticipated maturity of collateral
No anticipated maturity of collateral
No anticipated maturity of collateral
No anticipated maturity of collateral
No anticipated maturity of collateral
Principal Paid in full by GIC
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
ROI
IRR
$50,000
Venture Funding Advisors, LLC
13
Patent Pending – Copyright 2008
% Equity
50.00%
Re-Appraised Net Loan
Equity
RE Value
Prin/Bal.
Profit
$448,000
$440,000
$4,000
$474,880
$434,597
$20,142
$503,373
$428,860
$37,256
$533,575
$422,770
$55,403
$565,590
$416,304
$74,643
$599,525
$409,439
$95,043
$635,497
$402,151
$116,673
$673,626
$394,413
$139,607
$714,044
$386,198
$163,923
$756,887
$377,477
$189,705
$802,300
$368,217
$217,041
$850,438
$358,387
$246,026
$901,464
$347,950
$276,757
$955,552
$336,869
$309,342
$1,012,885 $325,105
$343,890
$1,073,658 $312,615
$380,522
$1,138,078 $299,355
$419,361
$1,206,362 $285,277
$460,543
$1,278,744 $270,331
$504,207
$1,355,469 $254,463
$550,503
$1,436,797 $237,616
$599,590
$1,523,004 $219,730
$651,637
$1,614,385 $200,741
$706,822
$1,711,248 $180,581
$765,334
$1,813,923 $159,177
$827,373
$1,922,758 $136,453
$893,152
$2,038,124 $112,328
$962,898
$2,160,411
$86,714 $1,036,848
$2,290,036
$59,521 $1,115,257
$2,427,438
$30,651 $1,198,393
$2,573,084
$0
$1,286,542
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
Structured Home Investment Program (SHIP)
Eliminates Future Bad Loans & Provides Positive IRR in Worse Case Scenarios
WIN/Win/Win/Win for Lenders, Borrowers, Government & Communities
Patent Pending - Copyright 2008
Premium
Side
Pre-Paid
Pre-Paid
0.00%
0.00%
0.00%
4.00%
4.00%
4.00%
44.00%
40.00%
36.00%
32.00%
28.00%
24.00%
20.00%
0
0
0
5,000
5,000
5,000
55,000
50,000
45,000
40,000
35,000
30,000
25,000
Interest
Payment
Declining
Prin Bal.
120,000
0
60,000
63,600
67,416
71,461
76,049
80,912
86,066
94,530
-1,000,000
-1,000,000
-1,060,000
-1,123,600
-1,191,016
-1,267,477
-1,348,526
-1,434,437
-1,575,503
-1,720,034
-$705,000
Actual Declining Bal.
w/Interest Added
-1,000,000
Premium Payments
295,000
Total
-705,000
Total GIC Return
Less Premiums
Sub Total
+ Initial Pre-Paid Int.
Total
1,200,000
-295,000
905,000
1,440,000
2,345,000
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
+
Best-Case IRR Scenario
[All Policies Mature in First Year]
A
Variable Input Fields $1,000,000
$440,000
% to Borrower 40.00%
Gross to Net % 227% -$1,000,000
$1,440,000
% to
$0
GIC Trust 60.00%
$0
$0
Interest Rates
$0
6.00%
6.00%
$0
Percent Down
$0
0.00%
$0
Loans Term
$0
10
30
$0
Mortgage Amm
$0
30
$0
% Cost of GIC
$0
45.00%
$0
% Yrly. Premium
$0
to Face Account
4.00%
% to Prin. Reduction
96.00%
% Annual Increase RE
6.00%
% Value to Loan
140%
110.00%
Year to Add-In Equity
10
Yr of Default & New
HomeOwner Deposit
0
20.00%
1,000,000 =
$1,440,000
44.00%
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
B
$1,000,000
$440,000
-$1,000,000
$1,466,400
$26,400
$26,400
$26,400
$26,400
$26,400
$26,400
$26,400
$26,400
$243,441
$26,400
$26,400
$26,400
$26,400
$26,400
$26,400
$26,400
$26,400
$26,400
$26,400
$26,400
$26,400
$26,400
$26,400
$26,400
$26,400
$26,400
$26,400
$26,400
$26,400
$2,449,041
52.19%
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
C
$1,000,000
$440,000
-$1,000,000
$1,471,656
$31,656
$31,656
$31,656
$31,656
$31,656
$31,656
$31,656
$31,656
$248,698
$20,841
$20,841
$20,841
$20,841
$20,841
$20,841
$20,841
$20,841
$20,841
$20,841
$20,841
$20,841
$20,841
$20,841
$20,841
$20,841
$20,841
$20,841
$20,841
$20,841
$2,390,424
53.50%
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
Gross Loan
After Pre-Paid
Net Loan / Interest
$320,000
Initial Value or Cost
Principal Paid in Full by GIC
Principal and Interest for Initial GIC Term
Principal and Interest for Initial GIC Term
Principal and Interest for Initial GIC Term
Principal and Interest for Initial GIC Term
Principal and Interest for Initial GIC Term
Principal and Interest for Initial GIC Term
Principal and Interest for Initial GIC Term
Principal and Interest for Initial GIC Term
Principal and Interest for Initial GIC Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
Principal Only for balance of the Term
ROI
IRR
-$1,145,000
Venture Funding Advisors, LLC
14
Patent Pending – Copyright 2008
$320,000
% Equity
50.00%
Re-Appraised Net Loan
Equity
RE Value
Prin/Bal.
Profit
$448,000
$440,000
$4,000
$474,880
$434,597
$20,142
$503,373
$428,860
$37,256
$533,575
$422,770
$55,403
$565,590
$416,304
$74,643
$599,525
$409,439
$95,043
$635,497
$402,151
$116,673
$673,626
$394,413
$139,607
$714,044
$386,198
$163,923
$756,887
$377,477
$189,705
$802,300
$368,217
$217,041
$850,438
$358,387
$246,026
$901,464
$347,950
$276,757
$955,552
$336,869
$309,342
$1,012,885 $325,105
$343,890
$1,073,658 $312,615
$380,522
$1,138,078 $299,355
$419,361
$1,206,362 $285,277
$460,543
$1,278,744 $270,331
$504,207
$1,355,469 $254,463
$550,503
$1,436,797 $237,616
$599,590
$1,523,004 $219,730
$651,637
$1,614,385 $200,741
$706,822
$1,711,248 $180,581
$765,334
$1,813,923 $159,177
$827,373
$1,922,758 $136,453
$893,152
$2,038,124 $112,328
$962,898
$2,160,411
$86,714 $1,036,848
$2,290,036
$59,521 $1,115,257
$2,427,438
$30,651 $1,198,393
$2,573,084
$0
$1,286,542
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
EXHIBIT B
More on Life Settlements As An Asset Class Securitization Instrument
The life settlement marketplace is a growing multi-billion dollar asset class that provides reliable and consistent
returns uncorrelated to other traditional investments. Institutional investors are becoming increasingly interested
in life settlements as an asset class due to the attractive risk-adjusted investment returns and lack of correlation
to traditional investments. Furthermore, the credit risk for a life settlement is minimal, considering that a highly
rated insurance company is the ultimate creditor for the final payout.
The Senior Life Settlements market provides the purchaser of a policy with the potential to yield a return far in
excess of anything that can be secured using the old traditional assets classes of equities, property, bonds and
cash deposits.
Unlike the Traded Endowment Assurance Policies (TEP), which depend on the performance of the above assets,
Senior Life Settlements' performance is simply dependent on the death of the insured and consequently are not
affected by interest rates, stock markets, or the price of oil. Therefore, they are ideal for the more cautious
investor (used as a hedge against loss of principal), or the skilled financial engineer who can see an arbitrage
opportunity in the discount to face value purchasing opportunity of guaranteed contracts from major US “A”
rated or better corporations.
Moreover, Senior Life Settlements should not be confused with Viaticals, which rely on medical prognosis to
estimate the life expectancy of a person of any age grouping, and therefore carry more risk. With the Senior Life
Settlement the policyholder is of such an advanced age, that the life expectancy can be calculated along an
actuarially calculated time of death. Any medical impairment within this grouping merely accelerates the
maturity of the policy.
The Guaranteed Insurance Contracts (GIC) provides guaranteed return of Principal and a variable IRR is driven
by the maturity of individual Senior Life Policies which mature at various points during the Term Certain. This
Term Certain is guaranteed by the re-insurer who settles the face maturity of the SLS’s at a contractual fixed
date. The Term certain is normally a 10-year period, however could be engineered to be longer.
The GIC structure (GIC here referring to the SLS wrapped with the re-insurance), are Zero Coupon Senior Life
Settlement policies that are secured (collateralized) by the death benefits of these life insurance policies,
classified as life settlements and guaranteed by re-insurance described below. These life settlements are life
insurance policies issued by US based life insurance companies with an AM Best rating of A or above. These
life settlements are “perfected” as investment grade and are qualified to the Issuer’s exacting criteria to assure
the performance of this structured collateral instrument. Once perfected and qualified these life settlements are
purchased and placed in a portfolio and pledged as collateral for the protection of the Gross Loan and profit
returns to the Lender.
The life settlements (the collateral) are credit-enhanced with a re-insurance syndication contract (guarantee of
payment payable at the maturity date of the fund). The re-insurer is a syndication made up of at least twelve and
as many as eighteen of the world's top reinsurance providers. Each of the re-insurers also carries an AM Best
rating of A or better. This company is highly rated by D & B and has not failed to pay a legitimate claim in their
history. Our provider is an international firm and has established re-insurance treaties with eighteen of the
twenty largest re-insurers in the world. These companies share the re-insurance risk, and agree that should any
one or more default on a claim, the others will pick up the liability.
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The premium paying process and mortality tracking are provided by an industry experienced professional
service firm. This firm carries $25M (per occurrence) E&O insurance to cover any potential errors. All the
settlements in the portfolio are $25M in death benefit or less and they are individually covered by the E&O
protection. Procurement of the life settlements are done in as escrow closing by a bonded escrow agent.
All collateral and reserves (policy premiums, taxes and expenses) associated with this fund are controlled under
the Fund Indenture with a major U.S. Bank. The Indenture requires more than adequate reserves for all taxes
and expenses.
Senior Life Settlement policies are sold (or purchased as collateral) at a discount to their future value; therefore
the profit to an investor or lender in a single policy is the difference between the discounted price paid at time of
sale/purchase, and the full face value, of the policy, paid on maturity. Although the return from a life insurance
policy is fixed and guaranteed by the life insurance company, the percentage annual return (PAR) can vary:


Should the seller of the policy die later than estimated the PAR would decrease and
Should the seller die sooner the PAR would increase.
The PAR dilemma has historically created a problem for lenders who require a fixed date certain term to lend
against. Our firm has been successful in obtaining and structuring term reinsurance and therefore able to
guarantee a 100% payout of the face value of the SLS on a fixed date certain.
This has enabled Senior Life Settlements to truly be one of the best asset class securitization instruments
available…a truly institutional structured collateral product. With this finance structure, lenders will have the
ability to harness better than traditional asset class returns.
Brief History of the Life Settlement Industry
The total face amount of life insurance currently in force in the United States is approximately $20 trillion,
according to the insurance research and rating firm A. M. Best.
This figure represents a very large proportion of the total amount of financial assets owned by U.S. households
and is about the same magnitude as the total capitalization of the U.S. debt and equity markets combined and is
over twice as large as the total value of residential real estate in the U.S. which is estimated at approximately $9
trillion (statistically, providing well enough SLS to finance the entire mortgage crisis). Up until very recently,
no secondary market existed for reasonably healthy insureds desiring to sell their policies and the only source of
liquidity for insureds was the issuing insurer—typically, in the form of a cash surrender value or policy loan.
Very recently, a secondary market for life insurance called the life or senior settlement market has emerged. In a
typical life settlement transaction, an insured sells his in force policy to a life settlement broker or similar
financial intermediary. The insured transfers all rights—e.g., cash surrender value, death benefit, etc.—and all
obligations—e.g., future required premium payments—to the intermediary in consideration for a lump sum
payment. The amount of the lump sum payment should reflect the present value of the rights of the policy less
its obligations, adjusted for the mortality risk of the insured, the expected duration of the death benefit, the credit
risk of the insurer, the nature and quality of the underlying assets, if any, determining the value of the rights and
obligations, and other relevant risks. In many cases, the fair value of the insured's policy can greatly exceed the
cash surrender value, thereby providing a strong incentive for the development of a secondary market. In
addition, an insured may desire to sell the policy for other reasons, such as a change in factors motivating the
initial life insurance purchase. For example, since the original issuance of the policy, the insured may have
experienced a change in health status, estate planning goals, financial condition, tax planning goals, employment
status, marital and family circumstances, and similar factors relevant to purchasing and maintaining an in force
policy.
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Specific Information and Criteria on our GIC Collateral Instruments
The PrincipalProtector™ Trust Managed Funds Insured Collateral Strategy
The Insured Collateral Strategy is used primarily to provide collateral to guarantee a loan in a debt transaction.
Investment professional clients or institutions, brought forth by either the Client Company or investment
banking firm, purchase guaranteed contracts of insurance (GIC) which mature in 10-years, or are guaranteed to a
fixed date certain by a re-insurance company.
They are insured/protected against loss of their principal plus they may actually receive gains from accumulated
tax deferred interest accumulation. The GIC is in the form of Senior Life Settlements underwritten by an A.M.
Best Aa or better insurance company is subsequently assigned to a bank as collateral, whereby the bank will
lend against of the face value of the contract of insurance to the client company.
The assignment of the re-insured senior life settlements to the bank is on a deficiency basis, whereby the
guaranteed contract of insurance can never owe back to the bank an amount greater than the original loan
amount less payments received (interest and principal). Cash value withdrawals may be made by the benefactor
of the Trust up to 10% per year, which can either be taken in cash or used to keep the bank loan current should
the company have a problem keeping it current.
Normally the guaranteed contract of insurance is for 10 years and written on a "bullet/end of term" basis. This
structure, given investment returns of approximately 7.18% allows the client to obtain 100% of their investment
principal, not withstanding their stock holdings.
The PrincipalProtectorTM strategy (PPS) was developed to help provide safety and security for investors
investing in new or emerging companies. This strategy encourages investors to invest in ventures that they
previously would have avoided because of the risks involved. Entrepreneurs that have utilized similar
PrincipalProtectorTM strategies have found it easier to raise capital because of the benefits offered to investors.
A. Each Investment is established through our PrincipalProtector TM Trust TM(PPT), an Irrevocable Trust
(Investor as the beneficiary or assigns) which provides the following benefits:
1. Unlike zero-coupon bonds and other financial instruments, Guaranteed Contracts of Insurance ("GIC")
offer tax-deferred accumulation and higher yields thereby accelerating the trust's growth.
2. The investor’s beneficial interest in the trust is not subject to bankruptcy or creditor claims of other
investors.
3. The beneficial interest in the trust can be transferred to accommodate a number of investor benefits
without liquidating the GIC and precipitating unfavorable tax consequences.
4. The trust flexibility provides for the assignment of beneficial interest, assignment of trustee, change in
custodian and early exit strategies.
5. Virtually no risk to Principal and high yield IRR potential Guaranteed by the Insurance Contracts.
6. Eliminates the worst-case investment scenario... full loss of principal with no return or income. Enables
investors to have the best of both worlds...safety & potentially significant returns from investment, or if used
as a side-fund to protect an investment in speculative new venture investment.
7. For over 8-years, Investors and entrepreneurs have successfully utilized the PPT to fund new ventures,
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and the program has been featured and recognized in the financial media and promoted by Inc, Fast
Company, Entrepreneur and The Wall Street Journal.
8. Jed Graham in a December 19, 2001 article in Investor's Business Daily said, The plan gives ultimate
safeguard: money-back guarantee. And now, despite the risk-adverse funding climate, the program, is
already helping start-up firms raise cash.
9. The program is also appealing to Angel investors, venture capital firms and investment professionals.
Bruce Blechman, co-author of Guerrilla Financing and founder of The Capital Institute, America's largest
financing advisory firm for small business says, The program is the first I've seen that takes the risk out of
risk capital.
10. Mark Long, author of Financing theNew Venture, attorney, broker-dealer securities counsel and partner
of Business Builders, LLC, has prepared over 1,000 Private Placement Memorandums, says, The program is
a solid strategy that helps investors participate in super ventures.
B. The GIC provides guaranteed return of Principal and the variable IRR is driven by the maturity of individual
Senior Life Policies which mature at various points during the Term certain. Description of theManaged Fund:
Zero Coupon Senior Life Settlement policies that are secured (collateralized) by the death benefits of these life
insurance policies, classified as life settlements and guaranteed by re-insurance described below. These life
settlements are life insurance policies issued by US based life insurance companies with an AM Best rating of A
or above. These life settlements are “perfected” as investment grade and are qualified to the Issuer’s exacting
criteria (see below) to assure the performance of this Managed Fund. Once perfected and qualified these life
settlements are purchased and placed in a portfolio and pledged as collateral for the protection of the fund return
to each investor.
The life settlements (the collateral) are credit-enhanced with a re-insurance syndication contract (guarantee of
payment payable at the maturity date of the fund). The syndication is made up of at least twelve and as many as
eighteen of the world's top reinsurance providers. Each of the re-insurers also carries an AM Best rating of A or
better.
The premium paying process and mortality tracking are provided by an industry experienced professional
service firm. This firm carries $25M (per occurrence) E&O insurance to cover any potential errors. All the
settlements in the portfolio are $25M in death benefit or less and they are individually covered by the E&O
protection. Procurement of the life settlements are done in as escrow closing by a bonded escrow agent.
All collateral and reserves (policy premiums, taxes and expenses) associated with this fund are controlled under
the Fund Indenture with a major U.S. Bank. The Indenture requires more than adequate reserves for all taxes
and expenses.
C. The Term certain of 10-years is guaranteed by our re-insurer, a financial guarantee provider who has been
doing this for many years provides the re-insurance. This company is highly rated by D & B and has not failed
to pay a legitimate claim in their history. Our provider is an international firm and has established re-insurance
treaties with eighteen of the twenty largest re-insurers in the world. These companies share the re-insurance risk,
and agree that should any one or more default on a claim, the others will pick up the liability. Some of the
participating re-insurers include:
Munich RE
St. Pauls RE
UNUM
NAC RE
Zurich
Allianz
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Aegon RE
Baloise
Swiss RE
Hannover
Mapfre RE
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AXA
ING
AIG
General & Cologne RE
Bayerische Ruck
Royal & Sun Alliance
Provident RE
Patent Pending – Copyright 2008
D. To demonstrate the strength of the Asset-Class collateral instruments, the portfolio of GIC collateral we
provide is in the form of Senior Life Settlement Policies, all meet the following criteria:
1. No more than two insured on one policy.
2. The insurance company must be organized in the United States
3. Insurance company must be rated by any one of the following as follows: A- by S&P or A3 by Moody's
or A- by Fitch Inc. or A- by A.M. Best Company, unless otherwise agreed to by Profilers in writing.
4. Contestability period shall have expired.
5. Net death benefit is a minimum of $1,000,000 to a maximum of $25,000,000.
6. The policy does not have a provision limiting the net death benefit for any reason, including but not
limited to war or terrorist acts, other than for non-payment of premiums.
7. Life expectancy is not less than 36 months and does not exceed 72 months.
8. Insured is not less than 55 years old.
9. The period, if any stated in the policy, during which the insurance carrier must pay the death benefit claim
shall be no longer than six months after the date the claim is filed.
10. The insurance policy and the legal and beneficial interests in the net death benefit are capable of being
sold, transferred and conveyed to Profilers.
11. No dispute, claim, action or proceeding is pending or threatened, which alleges that a person other than
the purchaser will have a beneficial or ownership interest in the insurance policy, or that any other person or
party has a lien on the policy.
12. All premiums required to maintain the insurance policy in full force and effect through the next
premium payment date have been paid.
13. The insurance policy is in full force and effect on the closing date.
14. The policy is not regulated by any state which prohibits the purchase or transfer of ownership of such
policies.
15. The original owner of the insurance policy had an insurable interest in the insured at the time the
insurance policy was issued and was not a charitable or religious organization.
16. The policy is not a group policy or part of a group policy, unless such policy can immediately be
converted to a separate policy.
17. The policy provides for a level net death benefit through the insured's life expectancy.
18. The policy is being sold in a jurisdiction where the transfer of such policy is not subject to the payment
of sales or other taxes except where such sales or other taxes have been paid.
19. The purchase price for the policy exceeds any applicable state sanctioned minimum purchase price.
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20. There are no policy loans on the insurance policy.
21. The life expectancy report shall have been completed or updated within 90 days of the purchase closing
date.
22. Life expectancy underwriter reports shall be obtained from at least one of the following Life Expectancy
underwriters as follows: A. 21st Services of Minneapolis, Minnesota; B. AVS Underwriting LLC of
Kennesaw, Georgia; C. Examination Management Services, Inc. of Waco, Texas; D. Fasano Associates of
Washington, DC; or E. Midwest Medical Review, LLC of Liberty Township, Ohio.
23. The insurance policy complied, at the time it was originated and at all times thereafter, with all
requirements of all applicable national, federal, state and local laws and all regulations promulgated
thereunder, and the purchase of such insurance policy complies with applicable national, federal, state and
local laws, and all regulations promulgated thereunder.
24. No provision of the insurance policy has been amended, waived, altered or modified in any respect
except as fully disclosed by the seller.
25. No default, breach or violation under the insurance policy exists and no continuing condition will
constitute a default, breach, or violation of the policy.
26. The purchaser will have good and marketable title to the insurance policy free and clear of all liens
existing prior to closing except to any contractual or statutory right of rescission of the sale transaction.
27. The insurance policy is not subject to any claims of third parties by virtue of any outstanding or
unsatisfied judgments, levies, liens or claims other than policy loans for advances made for the payment of
premiums.
28. No action or proceeding has been instituted or is threatened to restrain, prohibit, declare invalid or seek
other relief with respect to the insurance policy.
29. For reasons other than the failure to make future premium payments, no defenses or offsets may enable
the insurance company to be unable or unwilling to make death benefit payments on the insurance policy.
30. The insurance policy is not subject to laws of any jurisdiction that would make unlawful the sale,
transfer and assignment of the insurance policy.
31. The portfolio must be balanced so that the face amount of insurance for a single policy, a single insured
or a single insurance company will constitute no more than ten percent (10%) of the entire portfolio.
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EXHIBIT C
Links:
The following articles were paraphrased throughout the Introduction, History and State of Industry sections
herein.
Tackling the Mortgage Crisis: 10 Action Steps for State Government
http://www.brookings.edu/papers/2008/0529_mortgage_crisis_vey.aspx
Valley residents make fighting foreclosures a community affair
http://www.latimes.com/news/local/la-me-pacoima8-2008dec08,0,807296,print.story
Mortgage modifications falling short of goal
Most who received mortgage aid are again in default. Regulators ponder how far federal help should go.
http://www.latimes.com/business/la-fi-default9-2008dec09,0,1879765.story
The origins of the financial meltdown are rooted in government
http://network.nationalpost.com/np/blogs/fullcomment/archive/2008/12/11/219037.aspx
Loan Loss Reserves and Short Sales
http://shortsaleblogger.com/loan-loss-reserves-and-short-sales-why-the-banks-stall-foreclosure/
Life settlements fund provider predicts sector will grow to USD160bn
http://www.hedgeweek.com/articles/detail.jsp?content_id=253781&livehome=true
What is the taxation implication of a Life Settlement?
http://www.fpgonline.com/carriering/LMInsGuide.pdf
See Section: Income Tax Treatment of “Death Proceeds”
Note: Venture Funding Advisors does not provide legal or tax advise. Consult with your CPA or Tax Attorney
for tax consequences on your particular situation.
Senior Life Settlement Industry
http://lifesettlements.dealflowmedia.com/
Life Insurance Settlement Association
http://www.thevoiceoftheindustry.com/
Method and system for life settlement contract securitization and risk management
http://www.freepatentsonline.com/y2007/0299760.html
Land Trusts
http://www.answers.com/topic/land-trust
Inside Mortgage Finance
http://www.imfpubs.com/
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EXHIBIT D
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EXHIBIT E
Relaxed REMIC Requirements: IRS and Treasury Efforts to Address the Subprime Mortgage
Crisis
October 16, 2008
Expanded safe harbor rules allow real estate mortgage investment conduits (REMICs) and REMIC owners to
modify certain residential mortgage loans while maintaining favorable tax status.
Since the onset of the subprime residential mortgage crisis, there have been dramatic increases in mortgage loan
defaults, foreclosures and calls for restructuring. With enactment of the Emergency Economic Stabilization Act
of 2008, pressure has intensified for mortgage servicers to modify mortgage loans to minimize foreclosures. But
if such loan modifications create serious tax disadvantages to the entities that own those mortgages, it would be
difficult—if not impossible—to modify mortgage loans.
Many pools of mortgages are held in tax advantaged entities that qualify for tax purposes as REMICs that avoid
double taxation under the Internal Revenue Code. But for an entity to qualify as a REMIC, the pooled
mortgages must be basically treated as static pools of mortgage loans. Loan modifications could force a REMIC
to lose its favorable tax treatment, and once REMIC status is lost, it is lost forever.
This means that REMIC efforts to minimize foreclosures through loan modifications can threaten favorable tax
status of the REMIC and its owners.
To address these risks, the Internal Revenue Service (IRS) and U.S. Department of the Treasury (Treasury) have
taken actions to expand safe harbor rules that apply to REMICS. Through a number of recently issued revenue
procedures, the IRS has provided assurances that REMICs can retain their favorable tax status when mortgage
servicers make certain loan modifications as part of programs aimed to reduce foreclosures. The safe harbors
allow REMICs to engage in certain, previously prohibited activities that in the past could have resulted in
significant tax penalties.
The American Securitization Forum Framework
IRS guidance builds on recent efforts by the American Securitization Forum (ASF), an independent adjunct
forum of the Securities Industry and Financial Markets Association (SIFMA), to address the subprime mortgage
crisis. In June 2007, ASF published its Statement of Principles, Recommendations and Guidelines for the
Modification of Securitized Subprime Residential Mortgage Loans. In the statement, ASF recommended that
loan modifications should be permitted, under limited circumstances, without triggering a violation of REMIC
tax status.
The statement recommended that loan modifications be made only (1) consistent with the operative
securitization documents (that is, pooling and servicing agreements); (2) in a manner that is in the best interest
of the securitization investors in the aggregate; (3) in the best interests of the borrower; (4) in a manner that
avoids adverse tax or accounting consequences to the REMIC servicer; (5) where the loan is either in default or
default is reasonably foreseeable; (6) the servicer has a reasonable basis for concluding that the borrower will be
able to make the scheduled payments once modified; and (7) in a manner that provides sustainable and longterm solutions and does not reduce the required payments beyond anticipated period of borrower need.
ASF asserted that loan modifications meeting these criteria are generally preferable to foreclosure, particularly
in situations in which the net present value of the loan payments is likely to be greater than the expected net
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recovery that would result from foreclosure. ASF subsequently refined its position in two follow-up statements:
Streamlined Foreclosure and Loss Avoidance Framework for Securitized Subprime Adjustable Rate Mortgage
Loans, issued in December 2007, and Streamlined Foreclosure and Loss Avoidance Framework for Securitized
Subprime Adjustable Rate Mortgage Loans, issued in July 2008.
These two statements recommended that fast track modifications be allowed for subprime mortgages and
borrowers that meet strict criteria. Eligible loans include specific subprime adjustable rate mortgage (ARM)
loans with limited loan origination and initial interest reset dates. Within the framework, borrowers are also
classified into three distinct segments based on whether the borrower is current, likely to be able to refinance or
likely to have difficulty meeting the introductory rate.
IRS Issues Revenue Procedures Consistent with ASF Recommendations
In response to the ASF framework and to allow REMICs to participate in loan modifications, the IRS issued
revenue procedures discussed in this section.
Revenue Procedure 2007-72 and 2008-47
In December 2007, the IRS issued Rev. Proc. 2007-72, in which the IRS stated it would not challenge the
qualifications of a REMIC that followed the ASF framework’s fast track modifications. In July 2008, the IRS
issued Rev. Proc. 2008-47 to replace and supersede Rev. Proc. 2007-72, extending its guidance to include
residential mortgage loan modifications. In Rev. Proc. 2008-47, the IRS largely reiterated its conclusions in
Rev. Proc. 2007-72:
● First, the IRS will not challenge an entity’s qualification as a REMIC on the grounds that the mortgage
modifications were significant because they are deemed to fall within the exception for modifications made in
anticipations of default in I.R.C. §1.860G-2(b)(3).
● Second, the IRS will not assert that the loan modifications result in a disposition of qualified mortgage
subject to the 100 percent prohibited transaction tax.
● Third, the IRS will not challenge an entity’s qualification as a REMIC on the grounds that the modification
caused a reissuance of the REMIC’s regular interests.
● Fourth, if the securitization entity is a grantor trust, the IRS will not assert that the mortgage modifications
result in the prohibited power to vary investments.
To make it clear that Rev. Proc. 2008-47 is intended as a safe harbor, the IRS cautioned that “[n]o inference
should be drawn about whether similar consequences would obtain if a transaction falls outside the limited
scope” of Rev. Proc. 2008-47.
Revenue Procedure 2008-28
In May 2008, to expand the safe harbor protections, the IRS issued Rev. Proc. 2008-28 to address additional
questions of whether loan modifications undertaken as part of foreclosure prevention programs would have
adverse tax consequences to REMICs and REMIC owners. The IRS clarified that, if the conditions specified in
Rev. Proc. 2008-28 are met, it will not challenge the securitization entity’s qualifications as a REMIC.
Rev. Proc. 2008-28 applies to a mortgage loan held by a REMIC if the mortgage meets six requirements:
● the mortgage must be secured by one to four unit single family residences;
● the residence is owner occupied;
only 10 percent or less of the stated principal of total assets of the REMIC consists of loans with payments 30
days or more past due at the time of securitization;
● the servicer reasonably believes that there is a significant risk of foreclosure;
● the terms of the modification are less favorable to the lender; and
● the servicer believes the modification has substantially reduced the risk of a foreclosure.
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Proposed Treasury Regulations
Although current REMIC Treasury regulations provide some flexibility to allow for loan modifications, a large
number of other modifications continue to pose problems under the REMIC regulations. This is particularly
true because commercial mortgage loans have become increasingly common in REMIC pools, presenting
ongoing servicing concerns beyond those of residential mortgage loans.
To address these concerns and to acknowledge legitimate business practices currently used in the commercial
mortgage securitization market, the Treasury issued Prop. Treas. Reg. §§1.860G-2(a)(8) and 2(b)(3) to expand
the safe harbor rules to allow servicers to modify commercial mortgages held by a REMIC. The proposed
regulations seek to strike a balance between accommodating the legitimate business concerns of the commercial
real estate industry with the requirement that a REMIC remain a substantially fixed pool of mortgages that is not
engaged in an active lending business.
While the proposed regulations go some distance toward easing the concerns of REMICs holding significant
commercial mortgage loans, of particular concern is the Treasury’s proposal that collateral be retested by an
independent appraiser for every modification that meets certain criteria. This formal appraisal requirement is
unnecessarily burdensome. Hopefully, the proposed regulations, when finalized, will not require formal
appraisals in situations where the value of the collateral will not decline or where the collateral will decline on a
pro-rata basis in relation to the loan.
Obviously if loan modifications create serious tax disadvantages to those entities holding the pools of
mortgages, modifications will be difficult--if not impossible-- to negotiate.
Rules Applicable to Foreclosure Property
When modifications cannot prevent or cure a default on a commercial loan held by a REMIC, the foreclosure
rules (keyed to the foreclosure property REIT rules) apply. Unless otherwise extended, the grace period for the
treatment of property as foreclosure property is at the end of the third taxable year beginning after the year that
the REMIC Owned Real Estate (REO) property was acquired. A grace period can, however, under certain
circumstances, terminate early. In a situation where REO property is not a permitted asset, all income and gain
from that property is subject to the 100 percent prohibited transaction tax. Further, REO property can affect the
tax status of a REMIC because a REMIC can only hold a de minimis amount of non-permitted assets.
Conclusion
Over the past year, or so, the actions of the IRS and Treasury to expand loan modification safe harbor rules and
to update the REMIC regulations have set a clear standard within which REMICs and REMIC owners can be
assured of continued favorable tax status. As a result, REMICs are now able to more effectively address the
consequences of the current subprime mortgage crisis.
As the subprime crisis and its bailout unfolds, additional safe harbor areas are likely to be identified. Given the
quick responses of the IRS and Treasury to the ASF efforts, hopefully the government will continue to assist
REMICs and REMIC owners to enter into additional types of loan modifications to avoid foreclosures while
maintaining favorable REMIC tax status.
http://www.mwe.com/index.cfm/fuseaction/publications.nldetail/object_id/556092e7-30b6-49a4-914f7baf74fb0919.cfm
© 2009 McDermott Will & Emery
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