Mortgage Notes – How 7e’s Process Delivers Monthly Income

Q&A from the Webinar:

Q. Are dividends reinvested or paid out?

A. Dividends are paid out to investors on a monthly basis.

Q. What is the name of the fund I will invest in?

A. CWS Investments, Inc.

Q. What happens with properties “under water,” as happened in the last housing crisis?

A. We typically do not bid on assets that are “under water”, but have acquired loans in the past. In these situations, the value of the property it taken heavily into consideration and impacts our proforma model for the asset. Please note in today’s market we are discounting values of the homes by 10% of current value to account for potential for prices to decline.

Q. If you renegotiate with the homeowner, how long before can you resell and show that the mortgage is now performing?

A. Typically, in 8-12 months we can sell the loan as a reperforming loan.

Q. Is there a way I can track 7e’s performance?

A. The fund provides quarterly reports to investors along with a semi-annual and annual report to the SEC which includes audited financials.

Q. How big is your pool of notes?

A. Currently we have approximately 100 loans in the fund. As we continue to raise additional funds, we see this growing to 500-750 loans.

Q. The industry projection is for home real estate to decline by 6% in value over the next two years. How do you anticipate that will impact your program?

A. The housing market is something we watch very closely. Based on the data we have, we are being more conservative and we are currently pricing in a 10% decline in housing within our models over the next twelve months. We are also targeting assets that have equity. By targeting on assets with equity, it will reduce risk of price decreases in housing.

Q. What size is your typical investor?

A. We have over 300 investors in the fund. It is a diverse mix, from investors investing the minimum to investors who have been with us the past 5+ years investing six figures.

Q. Do you have to be an accredited investor?

A. This fund is open to non-accredited investors. The minimum investment is $2,500 with bonus shares starting at 25,000.

Q. Does this fund have fees for those who invest?

A. There are no fees to the investor. As an example, if you invest $10,000 you would be receiving 1,000 shares at $10/share.

Q. Is CWS making money based on management fees or in a similar way to how the other investors are making?

A. Investors get paid first. After investors receive their dividends, any excess distributions go back to the company.

Q. When you close on a group of loans and only have 30 days to fund the deal, do you use outside leverage until you find enough investors to fully fund the deal?

A. At this time we do not use outside leverage. The documents do give us the ability to obtain a line of credit to be used for this purpose, which is very common in the space.

Q. Who do you use for your servicer?

A. We use several servicers depending on the state, including Landhome Financial Services, Madison Management Company, and BIFI loan Servicing.

Q. What’s the investment period?

A. The investment period is a minimum of four years. The fund does not have a “sunset,” so investors can continue to remain in the fund after the minimum time period.

Q. When do you also expect to take this fund public?

A. At this time we have no intentions of taking the company public, but in the future if this is in the best interests of the investors this is an option we could pursue.

Q. Please touch on judicial vs non-judicial states and if that affects your due diligence.

A. Judicial states are those where you have to go through the courts to foreclose on a borrower, whereas non-judicial states do not require you to go through the court systems. Judicial foreclosures are typically more expensive and the time period is a longer timeframe. Because of this, non-performing assets in judicial states require additional time and costs. Our models are based on the timeframes and costs of each state and pricing is adjusted for this. As an example a $250,000 loan balance in a non judicial state has an estimated value of $175,000, whereas that same loan in a judicial state may have an estimated value of $135,000.

Q. So essentially, you are about “flipping” loans, not holding them for cash flow?

A. Once loans are reperforming, we will sell a percentage of them to then reinvest in more loans while also keeping a percentage of the loans for cashflow. We have a blended portfolio and are adjusting our models and portfolio on a daily basis.

Q. If you invest $2500 originally and several months later you want to invest another $5000. would the dividends be paid on two separate accounts or calculated for $7500?

A. Dividends are calculated on an individual investment basis. The investor would receive dividends on $2,500 and then on $5,000.

Q. Do you keep the money forever or is there a “maturity” date like a bind?

A. We do not keep the money forever. After four years, the investor has the option to remain in the fund or have their investment returned.

Q. On taxes, are other investments interest income or ordinary income, and is there a difference?

A. Whilewe cannot provide legal or tax advice, interest income is typically taxed at ordinary income rates. Because of our corporate structure, we issue 1099-DIV and offer the potential for your earnings to be taxed at a significantly lower rate than ordinary income rates. The webinar slides show a graphic of the difference for an investor in the 37% tax bracket, while the highest taxation rate on qualified dividends is 20%.

Q. On the investment forms, why do you need so much information?

A. The SEC requires every investor to go through a vetting process called AML/KYC — this stands for Anti-Money Laundering and Know Your Customer laws. This is no different if you were to open an account at Fidelity, Schwab, Merrill Lynch etc.

Q. Are bonus shares representative of ownership shares?

A. Bonus shares increase the number of Preferred Shares the investor owns.

Q. Are the company financials audited and available for investors to review?

A. The company financials are audited by Grant Thornton. They are made available to the investors and published on the SEC Website.

Q. Where are you guys located?

A. Our main headquarters is in Northern Virginia and our west coast office is in Santa Barbara California

Q. What’s the penalty to withdraw prior to end of the 4-year term?

A. Per our offering circular: “Member Redemptions and Lockup Period. Class A Members will be required to hold their Interest for four (4) years (the “Lockup Period”) from the date of the Management’s receipt and deposit of the invested funds. Early redemption requests for reasons of financial hardship or emergency during the Lockup Period may be considered on a case by case basis subject to a penalty against the amount invested (the “Redemption Fee”), payable the Company, as follows:
● Within 12 months – 12%
● From 12 months to before 24 months – 10%
● From 24 months to before 36 months – 9%
● From 36 months to before 48 months – 5%”

Q. What differentiates you from a listed company or RE ETF with a stated High Yield? 

A. We are owner-managers, unlike a RE ETF which are passively managed. We perform extensive due diligence on every asset we acquire and manage the asset throughout its lifecycle. Regarding transparency, we must follow SEC guidelines and file semi-annual and annual reports along with 253G2’s if we have revisions to the offering circular.

Q. Are the dividends paid out by check only? Or, can they be auto deposited to a bank account?

A. The investor has the option to receive a check or have it automatically deposited into their account.

 Q. What kind of liquidity do our investments have? 

A. The investment is deemed illiquid due to the four year minimum holding period. While illiquid, the shares are transferable.

Q. Can I publicize the fact that 7e may be able to help if someone in struggling to pay their mortgage?

A. We can only work with the borrowers of loans we acquire and we are not credit or debt counselors, therefore we should not be publicized as a company that can directly assist struggling homeowners as it may provide a false sense of hope.

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