Note 4 - Loans

3 Months Ended

Mar. 31, 2015

Receivables [Abstract]

Financing Receivables [Text Block]

NOTE 4 – LOANS

Loans generally are funded at a fixed interest rate with a loan term of up to five years. Loans acquired are generally done so within the first six months of origination, and purchased at the current par value, which approximates fair value. As of March 31, 2015, 50 of the company’s 53 loans (representing 98% of the aggregate principal of the company’s loan portfolio) have a loan term up to five years or less from loan inception. The remaining loans have terms longer than five years. Substantially all loans are written without a prepayment-penalty provision. As of March 31, 2015, 21 loans outstanding (representing 63% of the aggregate principal balance of the company’s loan portfolio) provide for monthly payments of interest only, with the principal due in full at maturity. The remaining loans require monthly payments of principal and interest, typically calculated on a 30 year amortization, with the remaining principal balance due at maturity.

Secured loans unpaid principal balance (principal)

Secured loan transactions are summarized in the following table for the three months ended March 31.

	2015			2014
Principal, January 1	$	19,185,660		$	14,698,430
Loans Funded		—			736,000
Loans acquired from affiliates		3,660,000			2,536,750
Payments received		(1,545,434	)		(2,965,335	)
Principal, March 31	$	21,300,226		$	15,005,845

Loan characteristics

Secured loans had the characteristics presented in the following table.

	March 31,			December 31,
	2015			2014
Number of secured loans		53			52
Secured loans – principal	$	21,300,226		$	19,185,660
Secured loans – lowest interest rate (fixed)		7.25	%		7.25	%
Secured loans – highest interest rate (fixed)		10.00	%		10.00	%
Average secured loan – principal	$	401,891		$	368,955
Average principal as percent of total principal		1.89	%		1.92	%
Average principal as percent of members’ capital		1.82	%		1.89	%
Average principal as percent of total assets		1.77	%		1.77	%
Largest secured loan – principal	$	1,600,000		$	1,600,000
Largest principal as percent of total principal		7.51	%		8.34	%
Largest principal as percent of members’ capital		7.25	%		8.19	%
Largest principal as percent of total assets		7.04	%		7.69	%
Smallest secured loan – principal	$	45,068		$	66,278
Smallest principal as percent of total principal		0.21	%		0.35	%
Smallest principal as percent of members’ capital		0.20	%		0.34	%
Smallest principal as percent of total assets		0.20	%		0.32	%
Number of counties where security is located (all California)		13			13
Largest percentage of principal in one county		29.51	%		25.23	%
Number of secured loans in foreclosure		1			1
Secured loans in foreclosure – principal		192,843			193,893
Number of secured loans with an interest reserve		—			—
Interest reserves	$	—		$	—

As of March 31, 2015, the company’s largest loan in the principal of $1,600,000 represents 7.51% of outstanding secured loans and 7.04% of company assets. The loan is secured by a residential property located in Aptos, California, bears an interest rate of 8.75% and matures on August 1, 2015.

Larger loans sometimes increase above 10% of the secured loan portfolio or company assets as these amounts decrease due to member withdrawals, loan payoffs, or due to restructuring of existing loans.

Distribution of loans within California

The distribution of secured loans outstanding by California counties is presented in the following table.

	March 31, 2015					December 31, 2014
	Unpaid Principal Balance		Percent			Unpaid Principal Balance		Percent
San Francisco Bay Area
San Francisco	$	6,284,854		29.51	%	$	4,584,854		23.90	%
Alameda		2,315,172		10.87			2,322,907		12.11
San Mateo		1,653,335		7.76			1,554,577		8.10
Santa Clara		1,349,972		6.34			891,674		4.65
Contra Costa		1,185,835		5.57			1,186,371		6.18
Sonoma		66,867		0.31			67,146		0.35
		12,856,035		60.36			10,607,529		55.29
Other Northern California
Santa Cruz		1,600,000		7.51			2,320,000		12.09
Monterey		180,551		0.85			180,897		0.95
		1,780,551		8.36			2,500,897		13.03
Northern California Total		14,636,586		68.72			13,108,426		68.32
Los Angeles & Coastal
Los Angeles		5,050,205		23.71			4,840,941		25.23
Orange		432,070		2.03			432,828		2.26
San Diego		45,068		0.21			66,278		0.35
		5,527,343		25.95			5,340,047		27.84
Other Southern California
San Bernardino		635,021		2.98			635,768		3.31
Riverside		501,276		2.35			101,419		0.53
		1,136,297		5.33			737,187		3.84
Southern California Total		6,663,640		31.28			6,077,234		31.68
Total Secured Loans	$	21,300,226		100.00	%	$	19,185,660		100.00	%

Commitments/loan disbursements/construction and rehabilitation loans

The company may make construction loans that are not fully disbursed at loan inception. Construction loans are determined by the managers to be those loans made to borrowers for the construction of entirely new structures or dwellings, whether residential, commercial or multi-family properties. The company will approve and fund the construction loan up to a maximum loan balance. Disbursements will be made periodically as phases of the construction are completed or at such other times as the loan documents may require. Undisbursed construction funds will be held in escrow pending disbursement. Upon project completion, construction loans are reclassified as permanent loans. Funding of construction loans is limited to 10% of the loan portfolio. At March 31, 2015, the company had no construction loans outstanding.

The company may also make rehabilitation loans. A rehabilitation loan will be approved up to a maximum principal balance and, at loan inception, will be either fully or partially disbursed. If fully disbursed, a rehabilitation escrow account is established and advanced periodically as phases of the rehabilitation are completed or at such other times as the loan documents may require. If not fully disbursed, the rehabilitation loan will be funded from available cash balances and future cash receipts. The company does not maintain a separate cash reserve to fund undisbursed rehabilitation loan obligations. Rehabilitation loan proceeds are generally used to acquire and remodel single family homes for future sale or rental. Upon project completion, rehabilitation loans are reclassified as permanent loans. Funding of rehabilitation loans is limited to 15% of the loan portfolio. At March 31, 2015, the company had no rehabilitation loans outstanding.

Lien position

Secured loans had the lien positions presented in the following table.

	March 31, 2015								December 31, 2014
	Loans		Principal			Percent			Loans		Principal			Percent
First trust deeds		46	$	19,636,633			92	%		44	$	17,114,452			89	%
Second trust deeds		7		1,663,593			8			8		2,071,208			11
Total secured loans		53		21,300,226			100	%		52		19,185,660			100	%
Liens due other lenders at loan closing				3,309,639								4,773,151
Total debt			$	24,609,865							$	23,958,811
Appraised property value at loan closing			$	47,463,405							$	44,552,048
Percent of total debt to appraised values (LTV) at loan closing(1)				51.85	%							53.78	%

(1) Based on appraised values and liens due other lenders at loan closing. The loan-to-value (LTV) computation does not take into account subsequent increases or decreases in security property values following the loan closing nor does it include decreases or increases of the amount owing on senior liens to other lenders by payments or interest accruals, if any.

Property type

Secured loans summarized by property type are presented in the following table.

	March 31, 2015							December 31, 2014
	Loans		Principal		Percent			Loans		Principal		Percent
Single family(2)		40	$	14,935,302		70	%		40	$	14,512,116		76	%
Multi-family		4		1,966,885		9			3		1,272,724		6
Commercial		9		4,398,039		21			9		3,400,820		18
Total secured loans		53	$	21,300,226		100	%		52	$	19,185,660		100	%

(2) Single family property type as of March 31, 2015 consists of five loans with principal of $1,294,710 that are owner occupied and 35 loans with principal of $13,640,592 that are non-owner occupied. At December 31, 2014, single family property consisted of five loans with principal of $1,318,743 that were owner occupied and 35 loans with principal of $13,193,373 that were non-owner occupied.

Scheduled maturities

Secured loans are scheduled to mature as presented in the following table.

Calendar Year	Loans		Principal		Percent
2015(3)		8	$	5,578,325		26	%
2016		13		4,359,634		20
2017		10		4,529,341		21
2018		6		1,218,922		6
2019		13		5,028,384		24
2020		2		518,887		2
Thereafter		1		66,733		1
Total secured loans		53	$	21,300,226		100	%

(3) Loans maturing in 2015 from April 1 to December 31

Loans may be repaid or refinanced before, at or after the contractual maturity date. On matured loans, the company may continue to accept payments while pursuing collection of amounts owed from borrowers. Therefore, the above tabulation for scheduled maturities is not a forecast of future cash receipts.

The company reports maturity data based upon the most recent contractual agreement with the borrower. There were no renewals for the three months ended March 31, 2015.

Delinquency

Secured loans summarized by payment delinquency are presented in the following table.

	March 31,		December 31,
	2015		2014
Past Due
30-89 days	$	584,854	$	448,930
90-179 days		—		514,791
180 or more days		—		—
Total past due		584,854		963,721
Current		20,715,372		18,221,939
Total secured loans	$	21,300,226	$	19,185,660

Modifications and troubled debt restructurings

There were no loan modifications made during the three months ended March 31, 2015, and no modifications were in effect as of March 31, 2015 or December 31, 2014.

Loans in non-accrual status

At March 31, 2015 and December 31, 2014, there were no loans designated in non-accrual status.

Impaired loans/allowance for loan losses

At March 31, 2015 and December 31, 2014, the company had not designated any loans as impaired, and had not recorded an allowance for loan losses as all loans were deemed to have protective equity (i.e., low loan-to-value ratio) such that collection is reasonably assured for amounts owing.

Fair Value

The company does not record its loans at fair value on a recurring basis. The recorded amount of the performing loans (i.e. the loan balance) is deemed to approximate the fair value.

- Secured loans, performing (i.e. not designated as impaired) (Level 2) - Each loan is reviewed for its delinquency, LTV adjusted for the most recent valuation of the underlying collateral, remaining term to maturity, borrower’s payment history and other factors. Also considered is the limited resale market for the loans. Most companies or individuals making similar loans as the partnership intend to hold the loans until maturity as the average contractual term of the loans (and the historical experience of the time the loan is outstanding due to pre-payments) is shorter than conventional mortgages. Further there are no prepayment penalties to be collected and any loan buyers would be hesitant to risk paying above par. Due to these factors sales of the loans are infrequent and an active market does not exist.

Loans designated impaired (i.e. that are collateral dependent) are measured at fair value on a non-recurring basis. The company did not have any loans designated impaired at March 31, 2015 or December 31, 2014.

- Secured loans, designated impaired (Level 2) – Secured loans designated impaired are deemed collateral dependent, and the fair value of the loan is the lesser of the fair value of the collateral or the enforceable amount owing under the note. The fair value of the collateral is determined by exercise of judgment based on management’s experience informed by appraisals (by licensed appraisers), brokers’ opinion of values, and publicly available information on in-market transactions (Level 2 inputs).

The following methods and assumptions are used to determine the fair value of the collateral securing a loan.

Single family – Management’s preferred method for determining the fair market value of its single-family residential assets is the sale comparison method. Management primarily obtains sale comps via its subscription to the RealQuest service, but also uses free online services such as Zillow.com and other available resources to supplement this data. Sale comps are reviewed for similarity to the subject property, examining features such as proximity to subject, number of bedrooms and bathrooms, square footage, sale date, condition, and year built.

Where sufficient, applicable sale comps are not available or deemed unreliable, management will seek additional information in the form of broker’s opinions of value or appraisals.

Multi-family residential - Management’s preferred method for determining the aggregate retail value of its multifamily units is the sale comparison method. Sale comps are reviewed for similarity to the subject property, examining features such as proximity to subject, rental income, number of units, composition of units by the number of bedrooms and bathrooms, square footage, condition, amenities, and year built.

Where adequate sale comps are not available, management will seek additional information in the form of broker’s opinions of value or appraisals.

Management’s secondary method for valuing its multifamily assets as income-producing rental operations is the direct capitalization method. In order to determine market cap rates for properties of the same class and location as the subject, management refers to published data from reliable third-party sources such as the CBRE Cap Rate Survey. Management applies the appropriate cap rate to the subject’s most recent available annual net operating income to determine the property’s value as an income-producing project. When reliable net operating income information is not available or the project is under development or is under-performing to market, management will seek additional information and analysis to determine the cost to improve and the intrinsic fair value.

Commercial buildings – Where commercial rental income information is available, management’s preferred method for determining the fair value of its commercial real estate assets is the direct capitalization method. In order to determine market cap rates for properties of the same class and location as the subject, management refers to reputable third-party sources such as the CBRE Cap Rate Survey. Management then applies the appropriate cap rate to the subject’s most recent available annual net operating income to determine the property’s value as an income-producing commercial rental project. When reliable net operating income information is not available or the project is under development or is under-performing to market, management will seek additional information and analysis to determine the cost to improve and the intrinsic fair value.

Management supplements the direct capitalization method with additional information in the form of a sale comparison analysis (where adequate sale comps are available), broker’s opinion of value, or appraisal.

Commercial land – Commercial land has many variations/uses, thus requiring management to employ a variety of methods depending upon the unique characteristics of the subject land. Management may rely on information in the form of a sale comparison analysis (where adequate sale comps are available), broker’s opinion of value, or appraisal.