How Oxford Funding would like to make money - (FYI ONLY)

The Math Behind This Genius

Assume a $220,000 home, where buyer puts 10% down and has a $200,000, 30-year fixed rate mortgage at 7%. The LENDER is about to default on its credit lines from liquidity issues and is desperate to off load its mortgage portfolios and raise cash. Nobody will touch its defaulted loans, so to stave off bankruptcy, it begins liquidating PERFORMING LOANS.

Oxford Funding steps in with an offer of say, 70% and a quick closing. Lender is saved from bankruptcy, greatly relieved, and readily agrees to the fast, discounted closing. Oxford invests $140,000 for the $200,000 mortgage. Oxford collects 7% of $200,000 in interest ($14,000/year) or 10% return on ITS invested capital while it holds the mortgage. Sometime down the road when the market returns to normal, Oxford resells the loan for $200,000 face value, pocketing an additional $60,000 in capital gains!!! Just add ZEROS to the number for a mortgage loan “portfolio” in the millions or billions…

As more mortgage lenders are taken to the cleaners, Oxford’s takeover activity will keep returns strong as it takes advantage of historic opportunities to capitalize on the largest tumble in the U.S. Mortgage Market since the late 1980’s. Sometimes, portfolios are classified as “sub-performing”, as the borrower has been making partial payments, interest only or has fallen behind in payments. These loans can typically be purchased at even greater discounts, and Oxford Funding has the management talent and ability to restructure the loans; forgiving portions of past interest or late fees, tailoring solutions to help the borrower get ahead of the curve, ultimately bringing them current and performing. Oxford can then either resell the loans at face value to traditional lenders, or keep the assets for larger profits over the term of the loan.

“The frenzy in the markets is exciting because "dislocations" can occur in pricing”. – Warren Buffett

Some experts have compared the Oxford business model to that of buying and reselling foreclosure properties, only better. Industry Pioneer J.T. Cloud says:

“Why buy a foreclosed property on the court house steps at a 15-20% discount to true value, and inherit the problems associated with real estate management, when you can buy the LOAN on that same property, directly from the lender who is desperate to off load the paper, at a discount of 40-60% or more!”

(http://www.oxfordfunding.com/)

US budget deficit set to hit $410bn

By James Politi in Washington

Published: February 4 2008 15:02 | Last updated: February 4 2008 15:02

The Bush administration on Monday blamed the slowdown in the economy for a projected increase of the US budget deficit to a near-record level of $410bn this year, or 2.9 per cent of gross domestic product.

The expected jump in the deficit was announced as George W. Bush sent to Congress a $3,100bn federal budget for 2008 – the last and largest of his eight-year presidency.

The spending plan, which is likely to set off an intense tug-of-war with Democrats who control Congress, includes a 7.5 per cent increase in funding for the US military to $515bn and a cut in government healthcare programmes such as Medicare, which serves the elderly, and Medicaid, which serves the poor.

The 2008 budget estimates that the deficit will rise from $162bn, or 1.2 per cent of gross domestic product, in 2007, to more than double that amount, or $410bn, in 2008 and $407bn, in 2009. This reverses a trend which has seen a gradual reduction in the US fiscal gap from a record deficit of $413bn in 2004. When Mr Bush took office in 2001, the US was recording a budget surplus.

The increase in the deficit was largely pinned on the slowdown in the US economy, which has forced the administration and Congress to agree on a $150bn package of measures to stimulate the economy through rebate cheques to consumers and investment incentives for businesses.

“The primary reason for increasing deficits in the near term is the president’s economic growth package and an expected slowing of receipt growth, due to an expected reduction in corporate tax receipts from recent high levels,” the 2008 budget said.

John Spratt, a South Carolina Democrat who chairs the House budget committee, was quick to offer his reaction to the plan. “Today’s budget bears all the hallmarks of the Bush legacy - it leads to more deficits, more debt, more tax cuts, more cutbacks in critical services,” Mr Spratt said.

Copyright The Financial Times Limited 2008

(http://ft.com)