Who Buys Annuity Payments?
Behind the Scenes
Transparency with Who Buys Annuity Payments
So, who buys annuity payments? Many annuitants seem to be left in the dark when it comes to who actually buys annuity payments. After speaking to hundreds and hundreds of annuitants over the years it became clear to me that the annuitants truly had no idea what goes on behind the scenes. I don’t believe it should be some big secret and would like to educate people as to what actually transpires when they sell annuity payments.
It Shouldn't Be Some Dark Secret
I know that most Annuitants probably don't care who actually buys their annuity payments. Most just want to sell their payments, get their money and move on with their lives. I get it. Still, I don't think the assignment details should be some big secret. Just to be clear I'm not referring to the court process. Many annuitants, especially those that have sold part of their annuity payments, are quite familiar with the court procedure of selling structured settlement annuity payments. It’s quite obvious; however, that many factoring companies don’t bother to educate the annuitant as to who actually winds up buying their annuity payments. We’re referring to the actual assignment or sale of the annuity payments and to whom they are sold.
Individual Investors, Institutional Investors and Factoring Companies Buy Annuity Payments
Individual Investors Buy Annuity Payments
The majority of smaller factoring companies such as Factor Financial tend to sell or assign their interest in the annuity payments to individual investors. These individuals are people, just like the annuitant, that want to invest in factored annuities. They see buying annuity payments as a safe, strong investment. Their name and address will go directly in the court order that approves the transfer. Many times, these payments end up being re-directed to the investor’s IRA retirement accounts. It’s important for both the annuitant and the investor to know that there is another person at the other end of the transaction. Why is this important? It’s important for two reasons. The annuitant must be willing to help provide the necessary documents in order for the transaction to close promptly and satisfy the investor. Conversely, the investor needs to understand that the annuitant is selling annuity payments because they need money as soon as possible. Therefore, once all proper closing documents are in order it’s imperative that the investor fund the transaction promptly so the annuitant can get the money they’ve been patiently waiting for.
Individual Investors Usually Don't Have Super Strict Compliance Requirements when Compared to Institutional Investors
As is, structured settlement annuity transfers typically take two months or more to complete regardless of what some factoring companies may tell the annuitant at the onset. As a general rule, individual investors are less strict when it comes to funding compliance as opposed to institutional investors. Factoring companies that use individual investors may be able to close quicker than those that use institutional investors. Many individual investors will fund the transaction simply with a copy of the court order approving the transfer and a copy of the annuity policy. This can be beneficial to the annuitant that is waiting to be funded. Afterall, they're selling their annuity payments for a reason and the quicker they get funded, the sooner they can go about doing what they need to do with funds in hand.
Institutional Investors Buy Annuity Payments
Many of the large factoring companies sell or assign their interest in the structured settlement annuity payments to institutional investors. They may initially have these payments transferred to their company address or PO Box but will later securitize these pools of loans to institutions. These companies have funds set up to buy these debt obligations from the factoring company. This is precisely what home mortgage originators do. If you have a mortgage from a commercial bank, it is very likely that it will be sold to a government sponsored entity such as Fannie Mae and Freddie Mac. The purpose is to provide the mortgage originators with more capital to loan out to prospective homeowners. One’s mortgage payment doesn’t change and really the only thing that may change is the address to where you mail your mortgage payment, if you still mail checks that is.
Institutional Investors Typically Require Stricter Compliance
What does this mean for the annuitant? It simply means that institutional investors that buy structured settlement annuity payments will most likely have stricter compliance guidelines that require more documents than an individual investor. An acknowledgement letter of the transfer from the issuing insurance company (post hearing), complete annuity contract, bankruptcy discharge (if applicable), benefits letter, child support payoff (if applicable), divorce decree (if applicable), full credit report, lien searches, release and settlement agreement affidavit (in lieu of settlement agreement), release and settlement agreement, social security card, state ID, and a uniform qualified assignment are examples of documents that will typically be required by institutional investors. This could delay the time it takes for the transaction to be funded. If the factoring company is on the ball, they will assist the annuitant in acquiring all the necessary documents prior to the court hearing (with the exception of the acknowledgement letter). Scrambling around to get documents after the hearing takes place will inevitably delay the closing and frustrate the annuitant.
Factoring Companies Occasionally Buy Annuity Payments
Rarely will a factoring company buy annuity payments on their own behalf and actually wait for the payments as if they were the annuitant. Some companies may occasionally buy an annuity if they can’t find an investor or if the discount rate on the transfer is extremely generous and the annuity payments aren’t due too far in the future. Still, most factoring companies don’t buy annuity payments for themselves just as most mortgage originators don’t give out loans to collect on each month for 30 years. There’s a big misconception among most annuitants that think the factoring company is actually the entity that winds up buying and receiving their annuity payments. The truth is almost all factoring companies are middlemen one way or another. As for the annuitant this doesn’t mean that one way is necessarily better than the other. The annuitant just needs to make sure they get all required documents to the factoring company they choose quickly in order to speed up the closing process.
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For more information or to get a quote for structured settlement annuity payments please call us at +1 (781) 242-4000 or fill out our form to the right.
Remember, the court process of selling your structured settlement annuity is the exact same no matter which company you choose. So, choose wisely!