Fewer purchases, fewer trips, delayed retirement and possibly even selling the house.
That’s how a group of local investors describe the decisions they’ve faced in the two weeks since finding out they stand to lose a significant portion of their savings that were invested with a group of mortgage funds managed by Vancouver-based American Equities.
The 15 funds, whose titles are variations of “American Eagle Mortgage,” are insolvent and have been placed in voluntary receivership. A preliminary estimate values their collective assets as about $34 million, against about $77 million in liabilities.
Portland consulting firm Hamstreet and Associates is assessing the funds’ finances and reporting to Clark County Superior Court with a plan to repay investors — about 200 of them — as best as possible.
Following an introductory May 30 meeting with Hamstreet at the Red Lion Hotel on the River Jantzen Beach, several investors contacted The Columbian and described the crowd as predominantly elderly people, many of whom had invested significant sums for retirement.
The investors said Hamstreet officials estimated the receivership process would take a year or more, and that investors would likely be repaid about 20 cents to 30 cents on the dollar. A Hamstreet consultant, Maren Cohn, later confirmed those estimates to The Columbian, although she stressed they were preliminary.
It was unclear how and why the investors ended up with so much of their savings in just a few funds. Six of the investors who contacted The Columbian agreed to elaborate about their investment decisions on the condition that their names and other identifying information are not published, for fear of jeopardizing whatever payout they could still obtain from the receivership process.
There are several consistent factors in their stories. Most have been doing business with American Equities for a long time –in some cases more than 20 years. They generally found the company through word of mouth, and most of them had prior experience with real estate investment. And they didn’t invest everything at once, but built up to bigger investments after initially positive returns.
All of them are above age 60 and say they’re facing uncomfortable decisions about finances and retirement plans.
Promising opportunity
Most investors said their initial involvement was in single-mortgage contract purchases, which was American Equities’ main focus until the company branched into pooled mortgage funds around 2003.
Most investors said they’d made previous real property investments before they learned about American Equities, so they were already confident in the model. One investor said he even sought out firms like American Equities after moving to the area, although most said they heard about the company through friends, family or business networks.
Regardless, American Equities’ contracts had a lot of positive signs for would-be investors.
The company would usually buy contracts that were partially paid off, according to one investor. That made them a safer bet — the owner has already sunk a lot of equity into the property, so they had a strong incentive to avoid defaulting on the mortgage.
Ideally the mortgage will be paid off without incident, but in the event the mortgage defaulted, the investor would get control of the property and would want to be able to recoup their losses. Again, American Equities’ portfolio of high-quality properties seemed like a good choice.
“(American Equities founder Ross Miles) did have a reputation for purchasing some nice real estate properties,” one investor said.
When reached for comment about a previous story, Miles said he and his company had enjoyed a “stellar reputation” since beginning operations in 1979, with only a handful of foreclosures among the early single-mortgage investments, and the current difficulties stemmed from impacts of the 2008 financial crisis. He could not be reached for comment about this story.
The 8 percent to 10 percent rate of return was also part of the appeal, another investor said, because it was higher than the interest rates offered by banks yet still modest enough that it didn’t seem like a high-risk proposition. And the real estate contracts seemed like a safe and stable investment vehicle, in contrast to the stock market.
One investor described taking time to research the company’s history and reputation, including checking police and legal records. He found no red flags.
“I felt pretty secure,” he said.
Investments and losses
All of the investors who spoke to The Columbian described making multiple contributions over a decade or more, spurred by positive returns on their initial money. Some took the interest as monthly payouts, while others rolled it back in to grow their investment. For some, the investments gradually grew to represent a majority of their retirement savings.
“I wasn’t living on it, I was just rolling it over so I could live on it someday,” one investor said.
Communication was minimal. The investors said they received monthly or quarterly reports and end-of-year summaries, with no other contact from American Equities unless the investors reached out — or unless American Equities staff wanted to talk about new investment opportunities.
“I never thought much about it,” one investor said.
For most of the investors, the first indication of a problem came between January and April, when they stopped receiving regular payments. According to one investor, that wasn’t necessarily cause for alarm — the company had been late on payments a couple of times before, but it had always come through in the end.
But nearly everyone who spoke to The Columbian said it was clear by the end of April that something had gone wrong.
Most of the investors who spoke to The Columbian said they had assets outside of the American Eagle funds, but the receivership still represented a massive loss — one that would inevitably lead to changes in their day-to-day lives.
“Instead of using this money when I’m 80, I’ll have to come up with something else,” one investor said. “I’ll have time (to do that), but others may not.”
Several investors spoke about having to delay their retirement or making plans to return to the workforce. Others talked about having to consider selling their house, or using other savings to quickly pay off the remainder of their own mortgage in order to decrease their monthly expenses.
And even for the investors who said they were well-prepared to weather the storm, the loss still stung.
“I try to sleep at night, but it just keeps coming back,” one investor said. “It’s a hard pill to swallow. I was going to retire in two years and now I can’t, there’s no way I could.”
