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Note 4 - Loans
 12 Months Ended
Dec. 31, 2012
Financing Receivables [Text Block]
NOTE 4 – LOANS

The partnership generally funds loans with a fixed interest rate and a five-year term. As of December 31, 2012, approximately 51% of the partnership’s loans (representing 52% of the aggregate principal balance of the partnership’s loan portfolio) have a five year term or less from loan inception. The remaining loans have terms longer than five years.

As of December 31, 2012, approximately 41% of the loans outstanding (representing 83% of the aggregate principal balance of the partnership’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.

The partnership makes construction and rehabilitation loans which are not fully disbursed at loan inception. The partnership has approved the borrowers up to a maximum loan balance; however, disbursements are made periodically during completion phases of the construction or rehabilitation or at such other times as required under the loan documents and would be funded from available cash balances and future cash receipts. The partnership does not maintain a separate cash reserve to hold the undisbursed obligations, which are intended to be funded. As of December 31, 2012, there was one such loan; however, the borrower is in default negating any funding obligation.

Loans unpaid principal balance (principal)

Secured loan transactions are summarized in the following table for the years ended December 31, ($ in thousands).

   
2012
   
2011
 
Principal, January 1
 
$
73,386
   
$
202,134
 
Loans funded or acquired
   
10,522
     
348
 
Principal collected
   
(17,401
)
   
(17,118
)
Loans sold to affiliate     (1,189 )      (2,122 ) 
Foreclosures
   
(3,728
)
   
(101,991
)
Other – loans charged off against allowance
   
(720
)
   
(8,031
)
Principal, December 31
 
$
60,870
   
$
73,386
 

During 2012 and 2011, the partnership renewed four and two loans, respectively, with an aggregate principal of approximately $967,000 and $597,000, respectively that were not included in the activity shown on the table above.

Loan characteristics

Secured loans had the characteristics presented in the following table ($ in thousands).

   
2012
   
2011
 
Number of secured loans
   
39
     
49
 
Secured loans – principal
 
$
60,870
   
$
73,386
 
Secured loans – lowest interest rate (fixed)
   
3.00
%
   
3.00
%
Secured loans – highest interest rate (fixed)
   
12.00
%
   
12.00
%
                 
Average secured loan – principal
 
$
1,561
   
$
1,498
 
Average principal as percent of total principal
   
2.56
%
   
2.04
%
Average principal as percent of partners’ capital
   
0.80
%
   
0.74
%
Average principal as percent of total assets
   
0.63
%
   
0.54
%
                 
Largest secured loan – principal
 
$
16,697
   
$
16,675
 
Largest principal as percent of total principal
   
27.43
%
   
22.72
%
Largest principal as percent of partners’ capital
   
8.56
%
   
8.21
%
Largest principal as percent of total assets
   
6.74
%
   
6.05
%
                 
Smallest secured loan – principal
 
$
87
   
$
92
 
Smallest principal as percent of total principal
   
0.14
%
   
0.12
%
Smallest principal as percent of partners’ capital
   
0.04
%
   
0.05
%
Smallest principal as percent of total assets
   
0.04
%
   
0.03
%
                 
Number of counties where security is located (all California)
   
19
     
21
 
Largest percentage of principal in one county
   
46.18
%
   
24.51
%
                 
Number of secured loans in foreclosure status
   
6
     
7
 
Secured loans in foreclosure – principal
 
$
1,910
   
$
21,915
 
                 
Number of secured loans with an interest reserve
   
—
     
—
 
Interest reserves
 
$
—
   
$
—
 

As of December 31, 2012, the partnership’s largest loan, in the unpaid principal balance of $16,697,000 (representing 27.43% of outstanding secured loans and 6.74% of partnership assets) has an interest rate of 10.00% and is secured by 9 units in a condominium complex located in San Francisco County, California. This loan matured February 1, 2011. The partnership is working with the borrower regarding the disposition of the remaining units.

Larger loans sometimes increase above 10% of the secured loan portfolio or partnership assets as these amounts decrease due to limited partner withdrawals and loan payoffs and due to restructuring of existing loans.

NOTE 4 – LOANS (continued)

Lien position

At funding secured loans had the following lien positions and are presented in the following table ($ in thousands).

 
2012
 
2011
 
 
Loans
 
Principal
 
Percent
 
Loans
 
Principal
 
Percent
 
First trust deeds
17
 
$
33,785
 
56
%
21
 
$
29,361
 
40
%
Second trust deeds
21
   
26,789
 
44
 
26
   
43,523
 
59
 
Third trust deeds
1
   
296
 
—
 
2
   
502
 
1
 
Total secured loans
39
   
60,870
 
100
%
49
   
73,386
 
100
%
Liens due other lenders at loan closing
     
80,875
           
114,550
     
                             
Total debt
   
$
141,745
         
$
187,936
     
                             
Appraised property value at loan closing
   
$
199,392
         
$
275,909
     
                             
Percent of total debt to appraised values (LTV) at loan closing (1)
     
71.10
%
         
68.12
%
   

 
(1)
Based on appraised values and liens due other lenders at loan closing. The loan to value 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 values likely have changed, particularly over the last four years, and the portfolio’s current loan to value ratio likely is higher than this historical ratio.

Property type

Secured loans summarized by property type are presented in the following table ($ in thousands).

 
2012
 
2011
 
 
Loans
 
Principal
 
Percent
 
Loans
 
Principal
 
Percent
 
Single family
31
 
$
46,295
 
76
%
37
 
$
52,085
 
71
%
Multi-family
2
   
2,557
 
4
 
3
   
4,609
 
6
 
Commercial
5
   
11,479
 
19
 
8
   
16,149
 
22
 
Land
1
   
539
 
1
 
1
   
543
 
1
 
Total secured loans
39
 
$
60,870
 
100
%
49
 
$
73,386
 
100
%

Single family properties include owner-occupied and non-owner occupied single family homes (1-4 unit residential buildings), condominium units, townhouses, and condominium complexes. From time to time, loan originations in one sector or property type become more active due to prevailing market conditions. The current concentration of the partnership’s loan portfolio in condominium properties may pose additional or increased risks. Recovery of the condominium sector of the real estate market is generally expected to lag behind that of single-family residences. In addition, availability of financing for condominium properties has been, and will likely continue to be, constricted and more difficult to obtain than other property types. As of December 31, 2012 and 2011, $36,855,000 and $40,907,000, respectively, of the partnership’s loans were secured by condominium properties.

Condominiums may create unique risks for the partnership that are not present for loans made on other types of properties. In the case of condominiums, a board of managers generally has discretion to make decisions affecting the condominium building, including regarding assessments to be paid by the unit owners, insurance to be maintained on the building, and the maintenance of that building, which may have an impact on the partnership loans that are secured by such condominium property.

The partnership may have less flexibility in foreclosing on the collateral for a loan secured by condominiums upon a default by the borrower. Among other things, the partnership must consider the governing documents of the homeowners association and the state and local laws applicable to condominium units, which may require an owner to obtain a public report prior to the sale of the units.

Distribution by California counties

The distribution of secured loans outstanding by the California county in which the primary collateral is located is presented in the following table at December 31, 2012 ($ in thousands).

California County
 
Principal
 
Percent
 
San Francisco Bay Area Counties
           
San Francisco
 
$
28,115
 
46.18
%
Contra Costa
   
17,927
 
29.44
 
Santa Clara
   
3,182
 
5.23
 
Alameda
   
1,682
 
2.76
 
Solano
   
1,641
 
2.70
 
San Mateo
   
665
 
1.09
 
Napa
   
411
 
0.68
 
Marin
   
180
 
0.30
 
     
53,803
 
88.38
%
Other Northern California Counties
           
Sacramento
   
2,518
 
4.14
%
Calaveras
   
196
 
0.32
 
Monterey
   
183
 
0.30
 
Butte
   
115
 
0.19
 
San Benito
   
98
 
0.16
 
     
3,110
 
5.11
%
Southern California Counties
           
Riverside
   
2,140
 
3.52
%
Los Angeles
   
817
 
1.34
 
Orange
   
588
 
0.97
 
San Bernardino
   
196
 
0.32
 
Kern
   
121
 
0.20
 
San Diego
   
95
 
0.16
 
     
3,957
 
6.51
%
Total
 
$
60,870
 
100.00
%

Scheduled maturities

Secured loans are scheduled to mature as presented in the following table ($ in thousands).

Scheduled maturities at December 31, 2012
 
Loans
   
Principal
   
Percent
 
2013
 
7
   
$
1,861
   
4
%
2014
 
2
     
2,355
   
4
 
2015
 
8
     
14,032
   
23
 
2016
 
2
     
3,265
   
5
 
2017
 
4
     
1,409
   
2
 
Thereafter
 
2
     
1,462
   
2
 
Total future maturities
 
25
     
24,384
   
40
 
Matured at December 31, 2012
 
14
     
36,486
   
60
 
Total secured loans
 
39
   
$
60,870
   
100
%

It is the partnership’s experience loans may be repaid or refinanced before, at or after the contractual maturity date. For matured loans, the partnership 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 partnership reports maturity data based upon the most recent contractual agreement with the borrower. The table above includes one loan with an aggregate principal of $3,085,000 which had its maturity date extended, which is considered impaired and is in non-accrual status, and four other loans with an aggregate principal of $967,000 which are renewals.

Matured loans

Secured loans past maturity are summarized in the following table ($ in thousands).

   
2012
   
2011
 
Number of loans (2) (3)
   
14
     
9
 
Principal
 
$
36,486
   
$
40,393
 
Advances
   
5,014
     
6,829
 
Accrued interest
   
61
     
1,608
 
Loan balance
 
$
41,561
   
$
48,830
 
Percent of principal
   
60
%
   
55
%

(2)
The secured loans past maturity include 12 and 8 loans as of December 31, 2012 and 2011, respectively, also included in the secured loans in non-accrual status.

(3)
The secured loans past maturity include 10 and 7 loans as of December 31, 2012 and 2011, respectively, also included in the secured loans delinquency.

Delinquency

Secured loans summarized by payment delinquency are presented in the following table ($ in thousands).

   
2012
   
2011
 
Past due
               
30-89 days
 
$
783
   
$
5,370
 
90-179 days
   
2,062
     
1,254
 
180 or more days
   
19,033
     
34,911
 
Total past due
   
21,878
     
41,535
 
Current (4)
   
38,992
     
31,851
 
Total secured loans
 
$
60,870
   
$
73,386
 

(4)
The partnership reports delinquency based upon the most recent contractual agreement with the borrower. At December 31, 2011 a loan with a principal of approximately $4,000,000 is shown as current as all past due amounts were received in early January 2012. Also at December 31, 2011, a loan with a principal of approximately $16,500,000 is shown as current as it was a new loan created from two past due loans on which the borrower made a payment of $3,000,000 in December 2011, and has been making timely scheduled payments on the new loan.

At December 31, 2012, the partnership had four workout agreements in effect with an aggregate principal of $1,126,000. Of the four borrowers, three, with an aggregate principal of $709,000 had made all required payments under the workout agreements and the loans were included in the above table as current. All of the loans with a workout agreement in effect were designated impaired and three of the four impaired loans with an aggregate principal of $866,000 were in non-accrual status.

At December 31, 2011, the partnership had eight workout agreements in effect with an aggregate principal of $4,255,000. Of the eight borrowers, seven, with an aggregate principal of $3,590,000 had made all required payments under the workout agreements and the loans were included in the above table as current. Six of the eight loans, with an aggregate principal of $3,649,000 were designated impaired and four of the six impaired loans with an aggregate principal of $1,131,000 were in non-accrual status.

Interest income accrued on loans contractually past due 90 days or more as to principal or interest payments during the years ended December 31, 2012 and 2011 was $50,000 and $112,000, respectively. Accrued interest on loans contractually past due 90 days or more as to principal or interest payments at December 31, 2012 and 2011 was $14,000 and $1,458,000, respectively.

Loans in non-accrual status

Secured loans in nonaccrual status are summarized in the following table ($ in thousands).

   
2012
   
2011
 
Secured loans in nonaccrual status
               
Number of loans
   
18
     
19
 
Principal
 
$
43,352
   
$
62,739
 
Advances
   
5,028
     
6,859
 
Accrued interest
   
11
     
2,259
 
Loan balance
 
$
48,391
   
$
71,857
 
Foregone interest
 
$
3,255
   
$
3,957
 

At December 31, 2012 and 2011, there was one loan with a loan balance of $99,000 and $195,000, respectively, that were contractually 90 or more days past due as to principal or interest and not in non-accrual status.

Impaired Loans

Impaired loans had the balances shown and the associated allowance for loan losses presented in the following table ($ in thousands).

   
2012
   
2011
 
Principal
  $ 45,964     $ 66,318  
Recorded investment (5)
  $ 51,054     $ 75,496  
Impaired loans without allowance
  $ 9,611     $ 32,363  
Impaired loans with allowance
  $ 41,443     $ 43,133  
Allowance for loan losses, impaired loans
  $ 19,560     $ 21,535  

(5)
Recorded investment is the sum of principal, advances, and interest accrued for financial reporting purposes.

Impaired loans had the average balances and interest income recognized and received in cash as presented in the following table for the years ended December 31, ($ in thousands).

   
2012
   
2011
 
Average recorded investment
  $ 66,898     $ 143,783  
Interest income recognized
  $ 195     $ 695  
Interest income received in cash
  $ 612     $ 277  

Modifications and troubled debt restructurings

During 2012, the partnership modified five loans by extending the maturity date, and/or lowering the interest rate, and/or changing the loan from interest only to an amortizing loan. Two of the modified loans qualified as a troubled debt restructuring under GAAP resulting in no losses being recorded.

During 2011, the partnership modified seven loans by extending the maturity date, lowering the interest rate or reducing the monthly payment. These loans were deemed impaired and are carried at the value of the collateral.

Allowance for loan losses

Activity in the allowance for loan losses is presented in the following table for the years ended December 31 ($ in thousands).

   
2012
   
2011
 
Balance, January 1
 
$
22,035
   
$
89,200
 
                 
Provision for loan losses
   
859
     
6,113
 
                 
Charge-offs, net
               
Charge-offs
   
(3,100
)
   
(73,388
)
Recoveries
   
21
     
110
 
Charge-offs, net
   
(3,079
)
   
(73,278
)
                 
Balance, December 31
 
$
19,815
   
$
22,035
 
                 
Ratio of charge-offs, net during the period to average secured loans outstanding during the period
   
4.32
%
   
45.57
%

The composition of the allowance for loan losses and the percentage of unpaid principal balance for each property type are presented in the following table for the years ended December 31, ($ in thousands).

   
2012
   
2011
 
   
Amount
 
Percent
   
Amount
 
Percent
 
Allowance for loan losses
                       
                         
Secured loans by property type
                       
Single family
 
$
19,255
 
76
%
 
$
21,475
 
71
%
Multi-family
   
60
 
4
     
60
 
6
 
Commercial
   
490
 
19
     
490
 
22
 
Land
   
10
 
1
     
10
 
1
 
Total for secured loans
 
$
19,815
 
100
%
 
$
22,035
 
100
%
                         
Unsecured loans
 
$
—
 
100
%
 
$
—
 
100
%
                         
Total allowance for loan losses
 
$
19,815
 
100
%
 
$
22,035
 
100
%