EXECUTIVE SUMMARY
The future of asset backed securitization is blockchain technology. The future goal of Obsidian One Corp. (herein after referred to as the “corporation") is to later apply to the Wyoming State Banking Division to become approved as a Special Purpose Depository Institution ("SPDI"). The Bank’s purpose shall to provide custody services and asset management services along with securitization of agency and non-agency mortgage loans. During the development phase the corporation intends to acquire and manage traditional agency and non-agency mortgage assets.
The organizing group is affiliated with multiple mortgage banking entities and its subsidiary, who together are referred to as the “Company” and are engaged in the origination of refinance and purchase money residential first lien mortgage loans and operate in various states throughout the United States.
The corporation’s product and services shall be based upon the acquisition of agency and non-agency mortgage loans to strip out the mortgage servicing, securitize the loans into asset-backed securities, manage the securities until sold for profit while retaining the mortgage servicing for future cash flow. Further, the corporation intends to apply to obtain GSE approved status as a Master Seller/Servicer for Uniform Mortgage-Backed Securities (UMBS). Finally, the corporation intends to acquire mortgage loans from nationwide underserved non-bank mortgage originators, a narrowly tapped market that need access to an proprietary economically efficient residential mortgage loan acquisition platform operated on a block chain ecosystem.
The corporation is organized as a Wyoming stock corporation. The organizing group consists of two founders. It is anticipated that the future Board will consist of nine directors. One of the future directors will be part of the senior executive management team of the future Bank. Three of the outside directors shall have prior business experience. The proposed Board comprises of directors with a wide range of professional, business, and community experience. They are committed to diligently accomplish their role in the corporate governance of the corporation and the future Bank and to guide the management team with regard to the safety, soundness, and profitability of the over enterprise. They shall possess the ability to properly capitalize the future Bank and to support its growth through their financial means, contacts in the community, and their diverse industry expertise that matches the profile of the overall enterprise’s target market.
In developing the plans and objectives for Obsidian One Corp., it is the opinion of the organizers that there are three primary factors related to the potential for success of this type of future de novo bank along with tis corp. undertaking.
The first factor is a sufficient business base, initially and primarily through the reach of the mortgage banking entities to support ongoing growth and profitability which annually closes and sells into the secondary market over $4BN of mortgage loans, so this volume would be exclusive to the corporation for its stated purposes.
The second success factor is the ability to capitalize on the above volume to establish an ongoing and potentially significant revenue stream due to the servicing fee income of the secondary market loans sold and the avoidance of loan sales to third-party broker-dealers who purchase such assets at a discount, thus allowing the competitor banks to capture this revenue. In this way, the future Bank shall have both annuity-like income from the servicing fees and current period income derived from the securitization and sale of secondary market mortgage loans.
The third factor is the ability of the corporation to achieve scale for growth because it can create and manage the mortgage loan derivative assets using technology that permits growth by employing efficient access to product, onboarding and management of assets and delivery to the secondary market with limited additional overhead burden.
DESCRIPTION OF BUSINESS
The organizers through experience and research understand that there are thousands of underserved non-bank mortgage originators and Banks <$800MM in the country that need access to an economically efficient residential mortgage loan acquisition institutions connected to the capital markets.
At present, funds required to fund residential mortgage loans are provided to the non-bank mortgage loan originators through warehouse lending arrangements with exceptionally large or regional depository institutions. Most mortgage loan originators sell their mortgage loans directly to the warehouse lender or an approved warehouse lender’s aggregator.
Through experience and research, the organizers learned that warehouse lenders and aggregators purchase agency mortgage loans from mortgage loan originators on average at discounts up to 15% of full market value. The aggregators securitize the mortgage into UMBS then the securities are sold into the secondary market at full market value thus realizing a sizable profit.
The organizers believe that there is a niche market of underserved non-bank mortgage loan originators including Banks <$800MM that will be the primary market in order to serve as their “back office” for this underserved segments of the originator that are universe (lacking access to the larger secondary market system) to support “vanilla” agency loan offerings to their borrowers that are reasonably priced with less overlays. These originators will benefit from the economies of scale realized through the Bank’s access of lower cost of funds coupled with the economic efficiencies of the Bank’s proprietary technology along with bypassing the large aggregators and/or the large regional and national depository institutions that place overlays (higher than necessary FICO score requirements, more than required income documentation etc.) on their mortgage loans products which narrows the playing field for many non-bank mortgage originators’ loans to be purchased by these banks.
The future Bank shall have access to the Federal Home Loan Bank (FHLB) and/or Federal Reserve System that would enable the Bank to acquire mortgage loans from underserved non-bank mortgage originators including Banks <$800MM that need more affordable mortgage loan products which is a narrowly tapped market. In addition to the above there are multiple areas the organizers believe the corporation and the future Bank will provide a benefit as follows:
1. Ability to access a lower cost of funds.
2. Replacing the broker-dealer by serving as an on-ramp and off-ramp of the UMBS into the secondary market bypassing the broker-dealer margins through proprietary AI operated on an ecosystem hosted on proprietary block chain technology.
3. The future Bank and/or a subsidiary thereof shall securitize residential mortgage loans.
4. The corporation shall be able to offer higher premiums to purchase from Banks <$800MM and the underserved non-bank mortgage originators loans due to its economic efficiencies.
Thus, the future efficiency of deploying a Special Purpose Depository Institution specifically to manage and securitize mortgage loan assets in an increasing interest rate environment along with a subsidiary thereof as an approved agency master seller/servicer with UMBS status with efficiencies and economies of scale provide a huge benefit to the underserved non-bank mortgage loan originator community as the corporation would be able to pay higher premiums to the originator for their mortgage loans.
The organizers research is supported by the GSE’s shift to securitization which started January 2022 as well as the position of the Homeownership Council of America who states that “...most underserved borrowers can be served by loan products that already exist in the market, and it is the delivery system that is failing to reach them”.
The organizers research also points out dwindling homeownership in the U.S. due to Banks and financial institutions aren’t issuing enough small-dollar mortgages that help families with modest incomes to purchase a property.
“It is particularly hard for people who are buying smaller houses with smaller mortgages to find a lender and to get that mortgage,” said Mike Calhoun, president of the Center for Responsible Lending. “And they also surprisingly are more expensive.”
The value of mortgage loans between $10,000 and $70,000 and between $70,000 and $150,000 dropped by more than 53% and over 21%, respectively, from 2011 to 2021, according to research by Attom Data Solutions. Meanwhile, the value for loans exceeding $150,000 rose by a staggering 240% plus in the same period.
“One barrier for small-dollar mortgages is that it’s just not as profitable for lenders to do them,” according to Janneke Ratcliffe, vice president of the Housing Finance Policy Center at the Urban Institute. “Lenders get all their fees and interest based on the loan amount so they’re going to get a lot less revenue on a $70,000 mortgage than they are on a $700,000 mortgage.”
INITIAL CAPITALIZATION
The corporation is a Wyoming Subchapter S Corporation which can initially request four hundred million (400,000,000) authorized shares of common and one hundred million (100,000,000) of authorized shares of preferred stock. The organizers each intend to contribution, sweat equity, capital, and assets in exchange for their thirty percent (30%) ownership of the corporation with no future organizer owning more than nine-point nine percent (9.9%) of the corporation, the remaining seventy percent (70%) of the Bank’s corporation will be sold in exchange for capital through a private placement offering with no one individual investor nor investor group acquiring more than twenty-four-point nine percent (24.9%) ownership.
Obsidian will begin its operations with its headquarters office situated in Southern California area and has secured a $50MM financing facility to jump start the acquisition of mortgage loans. Due to the lower cost of funds than that of the mortgage loans the corporation shall realize yield spread (interest income) revenue from day one. To close on the financing offer including all startup expense the corporation is hoping to raise $2MM from a small group of private investors. The investor shall be issued stock which will be secured by ownership in the mortgage loan servicing rights of over $50MM in mortgage loans which generates over $44K per month in net interest income.
INITIAL INCOME AND EXPENSE PROJECTION
START UP MONTHLY INCOME:
Interest Income From Mortgage Loans Purchased .......$291,667
Interest Income From Funds Hold Account .........................$1,667
Total Monthly Start Up Income: $293,334
"This does not include the gain on sale once the mortgage loans are sold and or securitized"
START UP MONTHLY EXPENSES:
Funding Facility Interest Expense .................................... $245,833
Non-interest/administrative Expense:
Loan Servicing Fee ....................................................................... $1,375
Loan Acquisition /Hedge Advisory Fee ............................... $2,044
Total Monthly Start Up Expenses: $249,252
Monthly Start Up Earnings Before Taxes: $44,082