- 75 -
of its mortgages to 95 percent in order to help carry the
properties. For the same reason, EPIC's management wanted
the loans to be nonrecourse.
EPIC found that lenders in the secondary mortgage
market would purchase such loans if the lender's risk,
taking private mortgage insurance into account, was no
greater than 72 percent of the loan. Thus, in the case of
a 95-percent loan, for example, a secondary lender would
require mortgage insurance of at least 25 percent. In the
case of a 90-percent loan, a secondary lender would require
mortgage insurance of at least 20 percent, and so on.
Through negotiation, EPIC found that private mortgage
insurance companies were willing to insure nonrecourse
mortgages on residential properties. As a result of
negotiations with secondary lenders and private mortgage
insurers, EPIC's management found that it could obtain
95-percent nonrecourse financing on single-family houses
and condominiums owned by its investment partnerships.
Finally, EPIC's management found that investors were
willing to purchase interests in the new partnerships
for roughly one-half of the anticipated tax losses; i.e.,
a 2-to-1 ratio. The new partnerships were known internally
to EPIC's management as "tax partnerships" to distinguish
them from the earlier "income partnerships".
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