Derivex - interest free loans?

nat r said:
OK....let me put forward the two questions I keep asking myself:

Why not lend the money at 3%....ie half what other lenders charge, be knocked over in the rush and still make a bigger fortune? Banking is about making profits not friends !

How is the person who put in the original $1.5m or $950k (I have lost track as to which it is) get a retuern on theri mony...I don't buy into the idea that somebody will be thankful just to get a return of capital rather than a return on capital.....it is just not true.
You going to the launch on the 17th Nat? I think it would be fair and you are in the business.

Remember Trev said:
Thommo let me know where u are - and if u are available - we would like to fly and accomodate u in Sydney so u can attend the "Showtime" launch on Friday December 17. Well done mate ....

He is as good as his word and I will be there. You can even interperet the banking jargon for me so I can give a better informed report to the forum. I would owe Trev that much. :)

Any other forumites going?

Thommo
 
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nat r said:
Roofarmer....a few quick points if I may:

Whoever put the original $950,000 in will be expecting to earn something...it looks like they have put in equity rather than debt. The typical equity return the professional market expects on a start up company is about 20%...I can't see where this will come from ...can you? If they put in as debt they would want about 8%.

I agree bankwest are offering 5.25% ...however, they are not rated AAA so any money you put with them will only have the rating they hold (A or A+) thus making the sale of a AAA bond impossible.

By having a larger amount (Say $10 mill) you will not get a higher interest rate...banks can borrow from each other at 5.25%...why would they pay more from an individual or small company......Bankwest are offering high rates as a 'loss leader' to attract retail high net worth customers. (BTW a deal I'm working on has $5mill on yearly deposit as part of the security base...the best we could get on it was 5.10%)

With regard to Fannie May and Freddie Mac ....they do not create money ...they borrow money secured against home loans....they charge interest on the money they lend so they can pay the interest on the money they borrow...BTW they issue mortgage backed bonds. In other words for every $1 they lend they haev borrowed $1.

Please note that they lend to US borrowers on a 25 yr fixed rate basis so if interest rates raise the boorower is not effected...

Hi Nat r,

In answer to your points:

1. The original investors will get a share of the % spread that Derivex is making.
2. Bankwest are not AAA rated but the income coming from interest deposited a t a bank is as the mortagage payments are secured against property and the interest is coming in part from that. If Bankwets or ING defaults doesn't the government (or banking ombudsman) have an obligation to pay out all deposits?
3. We're not talking about 10 million here we are possibly talking 100s of millions or perhaps a billion at deposit at any one point in time. Are you trying to tell me that a bank wouldn't give you 5.44% if you approached them and said I have 1 billion to deposit and this is going to reduce your overall loan exposure? If you're getting 5.1% why don't you just deposit with Bankwest or ING and earn an extra 0.15% on your 5 million?
4. When I said "create money" I meant more money goes into the economy as the banks can turn around and re-lend once they have cleared a loan from their books. Fanni Mae and Freddie Mac enable the banks to do this i.e. for one $200,000 initial loan they can create possible 3 loans or more.
5. Not ALL loans in the US are fixed for 25 years. There has been a great rise in the US for what we call variable loans over here. If interest rates rises and property prices drop US investors will think about walking away from these types of loans. Even with a fixed term loan if property prices drop they will consider walking away! Compare this to a house that you are paying down at 5% a year if house prices don't drop by more than 5% you're sweet!

BTW - just because you're in the industry doesn't mean you know everything. Thinking you know everything about a topic is very dangerous.

That said I appreciate your comments and you have raised some very good points. I just have a gut feel that Derivex is Koscher and everybody is just running scared as it is a serious paradigm shift and we haven't been given a laymen's description of the model. But I guess if you invented something and it hadn't gone live yet you wouldn't explain it to everybody yet would you?
 
"The original investors will get a share of the % spread that Derivex is making." ...which is way too little to attract investors.

"Bankwest are not AAA rated but the income coming from interest deposited a t a bank is as the mortagage payments are secured against property and the interest is coming in part from that. If Bankwets or ING defaults doesn't the government (or banking ombudsman) have an obligation to pay out all deposits"....retail deposits for mums and dads 'maybe' but not wholesale money in the hundreds of millions.

"Are you trying to tell me that a bank wouldn't give you 5.44% if you approached them and said I have 1 billion to deposit and this is going to reduce your overall loan exposure? "...yes I am telling you that.

"When I said "create money" I meant more money goes into the economy as the banks can turn around and re-lend once they have cleared a loan from their books. Fanni Mae and Freddie Mac enable the banks to do this i.e. for one $200,000 initial loan they can create possible 3 loans or more." ...I can't really commnet on this as I don't think what you have said makes much sense....as I have pointed out every dollar lent is backed by a dollar borrowed.

"Not ALL loans in the US are fixed for 25 years. There has been a great rise in the US for what we call variable loans over here. If interest rates rises and property prices drop US investors will think about walking away from these types of loans. Even with a fixed term loan if property prices drop they will consider walking away! Compare this to a house that you are paying down at 5% a year if house prices don't drop by more than 5% you're sweet!".......yes they have more variable rate product coming through their market but your logic is flawed...for a start what about the equity the borrower put into the house on day 1 plus just because the value falls it does not mean borrowers walk away....what about the utility value of having a roof over their head?

" I just have a gut feel that Derivex is Koscher"... gut feel is great but real numbers win the race !
 
Thommo said:
He is as good as his word and I will be there. You can even interperet the banking jargon for me so I can give a better informed report to the forum. I would owe Trev that much. :)

Any other forumites going?

Thommo


Hi Thommo

I would like to go as I have been in touch with Trevor several times via email. Is it an open launch or invite only? :confused:
 
Wazza007 said:
Hi Thommo

I would like to go as I have been in touch with Trevor several times via email. Is it an open launch or invite only? :confused:
I have no details Wazza. No time or place, just a date.

I'm playing it by ear.

T
 
roofarmer said:
<snip> I just have a gut feel that Derivex is Koscher and everybody is just running scared as it is a serious paradigm shift [emphasis is mine] and we haven't been given a laymen's description of the model. But I guess if you invented something and it hadn't gone live yet you wouldn't explain it to everybody yet would you?

I'm waiting for the PDS. I'm hoping it will be somewhat understandable. After that, then we can all dig into the details behind the PDS with a common understanding. I might have to buy a PDA with a wireless city-wide link just to keep up with the flurry of posts that will happen. :D :D :D

But I'm still skeptical about the longevity of this venture. Everytime I hear the word "paradigm shift", I think about the .com boom. They said we didn't need to make money anymore and all the high valuations were based on a "paradigm shift" about how companies worked.

Unless it's just a true variation on fractional banking and the paradigm shift is how you look at your property loans.

I would love to go to the presentation myself. It's just too compelling. It could be enRICHing or amusing. Either way, worth the show.

Hmmm...

Jireh
 
On the Devirex site their is mention of the Funding tender being announced this week...has anybody seen or heard anymore on this point.

If they are looking to 'appoint' a funder this week and start funding next week then that would be impressive.....the shortest timeframe I have ever seen (for a very run of the mill deal) was 3 mths.
 
nat r, I along with a couple of colleagues have been keeping an eye out for the Derivex advertising in the AFR and Australian as indicated by Trevor. Nothing so far.

We actually met Trev for a couple of hours recently and he's not your typical financial markets type. We walked away thinking it was the strangest business meeting we had ever attended. His discourse dominated the entire period, deferring all our questions, asking rhetorical questions himself and jumping from one subject to another without any indication or pause for breath.

He certainly has no ability to communicate the underlying principles of Derivex in layman's terms and I think we left feeling more confused than we went in. We are no strangers to securitisation and mortgage backed lending but he's operating on another level. We have since pieced together our understanding of how it is 'supposed' to work but likewise want to see a complete PDS, loan contract and security documentation etc. before coming to any conclusions. Nothing though seems to be forthcoming within the timeframes he put to us.

Sure, business start-ups have their huge demands on time and slippages are often the result but this all put together is developing a distinctly uneasy feel in the context of a supposedly orchestrated global rollout.

It might be a scam, it might be legit but even though Trev has no discernable Nigerian traits, it really strikes me as odd that there is absolutely nothing in the press about this absolute revolution in residential finance. Surely something as potentially big as this would start some bells clanging somewhere in the financial press and the capital markets. We have recently been dealing with directors of securitsation at a couple of the major banks and no-one in their world knows anything about this.

Curiouser and curiouser....
 
Hi Rambler

I dont disagree with what your saying, and have the following view.

For those with Christian beliefs, Jesus was been described as a prophet without honour in his own land.

Remember that the general media is not at the forefront of developments of any sort In my opinion, indeed, a scoop for one outlet will be fodder for the rest of them for a week, with many of them doing no independent research.

Once the dust settles ......................... Im open minded to this point. A client I was sitting with tonite said to me "You have been strangely quiet on the Derivex thing"

I suppose thats because Im not going to pass judgement on something I know zip about. I know what my gut feel tells me, but that isnt relevant........ until more REAL info is to hand.

ta

rolf
 
quintets said:
But I'm still skeptical about the longevity of this venture. Everytime I hear the word "paradigm shift", I think about the .com boom. They said we didn't need to make money anymore and all the high valuations were based on a "paradigm shift" about how companies worked.
:)

IT spending is now HIGHER than it was during the dot com boom.

A lot of companies died, but the survivors are now close to becoming 'normal' corporate citizens.

Interesting how people remember the bust & don't see the positive outcomes - the new technologies, more innovative business models (the fittest that survived).

I'd love to see many more companies innovating in the financial space as Derivex is doing. Many models would fail naturally, but the survivors would shift the paradigm (even if only a little) and that's better for those of us who use OPM!

Cheers,

Aceyducey
 
"He certainly has no ability to communicate the underlying principles of Derivex".........which in my experience is not a good sign.

"We have recently been dealing with directors of securitsation at a couple of the major banks and no-one in their world knows anything about this.".......I also speak to loads of senior bank securitisation people, both in Australia and offshore, and none of them have heard about this either.

I hate to be mean, but if this has any chance of getting up in the next 6 mths then in reality the Devirex people would have to be in the advanced documentatioon phase of their funding facility.

To suggest that they are "tendering" for a funding licence this weekend suggests they are not at that stage. As I mentioned a quick result for a established lender looking to start a new facility is minimum 3 mths....more likely 6mths and the typical timeframe for a start up group is 8 to 12 mths.


At another level....."tendering' for funding is not how the wholesale banking market works, IMHO it speaks to the lack of real world experience within the group.
 
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These three "new" links were communicated to me (and possibly others) this morning by Trevor Cohen himself. He seems to be taking a bit of interest in keeping in touch with forumites.

http://www.derivex.com.au/company/licence.htm
http://www.derivex.com.au/company/product_lines.htm
http://www.derivex.com.au/contact/tender_request.htm


nat r said:
"He certainly has no ability to communicate the underlying principles of Derivex".........which in my experience is not a good sign.

"We have recently been dealing with directors of securitsation at a couple of the major banks and no-one in their world knows anything about this.".......I also speak to loads of senior bank securitisation people, both in Australia and offshore, and none of them have heard about this either.

I hate to be mean, but if this has any chance of getting up in the next 6 mths then in reality the Devirex people would have to be in the advanced documentatioon phase of their funding facility.

To suggest that they are "tendering" for a funding licence this weekend suggests they are not at that stage. As I mentioned a quick result for a established lender looking to start a new facility is minimum 3 mths....more likely 6mths and the typical timeframe for a start up group is 8 to 12 mths.


At another level....."tendering' for funding is not how the wholesale banking market works, IMHO it speaks to the lack of real world experience within the group.

Nat R, I wonder if they're not following the wholesale banking way because they're not a bank. Is it possible they're using another sort of "applied finance" techniques?

Mind you, the exec summary did say a "seasoned" fund would take 18 months. But they're only starting now. Hmmm...

Still waiting for the PDS.

Jireh
 
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"I wonder if they're not following the wholesale banking way because they're not a bank"

.....every non-bank/non ADI lender of scale (more than $20mill of loans) sources their funds in some way from banks via wholesale facilities....once they have built up enough loans to warrant a bond issue (more than $150miil) then they securitise them.

About the only exceptions are the groups that issue debentures via the small ads in the paper....even these groups are turning to banks to secure longer term money in volume.
 
Lissy,

Great thread.

And congratulations to "Thommo the Jetsetter" :)

Interesting to see everyones opinions.Would be great if true.

Would certainly affect the property market for one. All those people out there initially upgrading their PPOR's due to affordability etc.

On Derivex website they give you option of 10,15 or 20 yr interest free loan!
Why would you take the 10 or 15?

Also they quote
"Our mission is to challenge traditional home loan lenders in local and international markets and make home ownership genuinely affordable."
Very noble of them. ;)

Would like to think they could assist me out of the Rat race but can't help thinking I smell a ...... :D

Hopefully not.

A86

PS. There go my chances of a loan.
 
Hi everyone, I have put together a scenario using one of my properties that is I/O as the example, it is currently in my own name. The loan application I have submitted to derivex is for another property and will be purchased via the HDT. I am considering properties that I hold, and owe money on, that are not "great capital" growth but good cashflow and the P&I loans on them are getting to the 50-50 stage, the principle/interest on the P&I.

There is no need to do any analysis on your home as the "no interest" puts you miles ahead but for an investment property the no interest is not for everycase due to impacts on cashflow, see my example below.

Please yell if anyone sees an errors in my work, and I hope I have not missed anything.

example of paying interest vis no interest

Normans position today on 1 of his properties, I have done some rounding etc but the results will show the picture and the areas of rounding are in the “Strata fees” of $370 in fact “$120” of this goes in to a sinking fund which is not claimable as an expense but only when it is spent, for this exercise I have said however that it is all claimable as a tax deduction. It is for this reason that I have a “relatively” low maintenance reserve.

Borrowed $172,000
interest only @6.47% or 11,128pa
Council rates of 1200pa
Strata fees 1480pa
Agents fees 870pa
Maint reserve 860pa
Building @2.5 of $60,000 1500pa
Misc stuff 600pa
Total writeoff (17638)pa

Income at 225/week 11700pa
Difference (5938)pa
I am in the top bracket so I get back 48cents in reduced tax hence my actual out of pocket cost to hold this property is about (2850)pa or (238)pmth.

Now if I refinance with derivex and capital return only loan I will have $172,000 no interest and I shall borrow the 5% for the conduit and pay I/O on the $8,600 at 6.47% or 560pa

Borrowed total of $180,600
Interest only @6.47 of 5% 560pa
Council rates of 1200pa
Strata fees 1480pa
Agents fees 870pa
Maint reserve 860pa
Building @2.5 of $60,000 1500pa
Misc stuff 600pa
Total writeoff (7070)pa

Income at 225/week 11700pa
Difference 4630pa
I am in the top bracket so I get to pay tax of 48cents per dollar tax on all income so that means I have to reduce my actual, by tax owing so I am left with 2407pa or $200/mth after tax, income.

So my I/O property had a total outgoing from me of 238/mth (negative cashflow) and at the end of a 12mth period I have paid 2850, and still owe 172,000 with hope property has appreciated by say 7% or $12,040.

My return of capital loan (no interest) has cost me the difference of my income after tax gain and the return of capital (loan payments) for the year or $6193pa which is $520/mth. However I was already paying out under the I/O arrangements a sum of ($238) so I need to finance an extra $282/mth which comes directly from my cash flow and thus my ability to further purchase other properties. But I have paid down the outstanding on the property to the sum of $8600 thus now owing $163,400 on a property that has appreciated by the assumed 7% or $12040. Therefore for an added cost of $282/mth or $3384 I now have an extra $8600 in capital or a return of about 250%

My conclusion is the “derivex product” affects cash flow but is a fast path to equity – that enables further borrowings due to the greater equity; therefore the derivex product is part of an overall strategy not the only strategy.

Now I have done this all in my name but in my case the purchase will be in the HDT which improves my ability to use the pretax monies and I will distribute the monies to my wife at 30 cents in the dollar rather than my 48 cents all of the above make the situation more attractive and works out that I would only need to find $208/mth instead of $282. Obviously any further pretax expenditure that I can find within the trust makes the issue even more attractive but it does not alter the conclusion that this product has its uses but will limit you due to cash flows. However due to the accelerated pay down of loan, current debt can be rewritten and the +ve cash flow at the end of the term used to further borrow. I therefore envisage a mixture of I/O and No interest loans, juggling the cash flow.
 
Hi all.
Just wondering if anyone has seen the Derivex advertisment that is supposed to be in todays newspapers. Haven't been out yet, so haven't seen it yet. Was curious as to how this was being marketed.

Regards
Marty
 
Aceyducey said:
:)
A lot of companies died, but the survivors are now close to becoming 'normal' corporate citizens.

Interesting how people remember the bust & don't see the positive outcomes - the new technologies, more innovative business models (the fittest that survived).

Hi Acey,

I remember reading recently, that there are alot of very smart people out in the IT dot-com boom who will be one-shot millionaires. The "new paradigm" said the internet had it's own currency, it's own business model and didn't need real money to survive. Some of their investors may have ridden the tailcoats to fortunes, but many others would have taken a fall. The initial owners may be rich. They may think they have knowledge about how to run a business in the "new paradigm", but in the end, they didn't have what it takes to repeat the successes they had.

The ones that survived had a business model that worked for them, their employees and customers, had the personality to transfer that vision and hard work into a simple, standardized and repeatable operation and were in the right place at the right time. I don't know the ratios, but not every dot.com made it. Few few.

Out of the ashes, those that had deep pockets, and/or really good products and systems, and learned from all the mistakes made before them learned how to survive. But they only stood the test of time after the technology curve shifted from the visionaries to the followers.

Is Derivex a visionary or a follower? We don't know. I think they're the first one. So this entire company, including their patented, proprietary software, might be a "version 1.0". Hmmm.

I work with computer system designers who crank out fantastic documentation and they think just because they're beyond programming now, they're geniuses. I just look them square in the eyes and say, "Remember, paper doesn't crash."

And when designers who actually can cut code and program then complain to me that writing design documentation is boring and a waste of time, I tell them, "The documentation is the only, ONLY proof I have that you actually thought about it".

On the other hand...

As a consumer, the dot-com era has changed my life. I have cheap and plentiful bandwidth. I can communciate easily with my family on the other side of the world. I can talk to like-minded people like on this forum for free. FOR FREE!!!. Do I care how Somersoft make their money? No. But is their business model simple? Probably yes. Is the software they write simple. Well, the area of knowledge is big, but it's relatively easy to use. Is the detailed computer programming that went into that part of the software more complicated than the average joe can understand? You betcha it's bloody complicated. Should I worry if I don't understand it? No. So long as the works, I don't care.

For me, the question I want answered after I've read the PDS is, if the program crashes, do I lose all my work? :confused: :confused: :confused:

I don't know if a PDS is supposed to answer that question. Any of our financial types care to provide guidance on what a PDS should answer?

Jireh
 
From memory the tender period for my new side fence (value $2100) was open for longer than Devirex have allowed for their multi billion dollar funding and licencing process. ;)
 
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