How to buy Notes – Current Market Update

How to buy Notes- Current Market Update, and Implications for You as a Note Buyer

Treasury Secretary Henry Paulson just reversed course on the fabled Troubled Asset Relief Program (TARP) and said that Treasury will no longer plan to buy Troubled Assets.

It’s a shame, and a mistake.

Underlying the current credit and broader financial crisis is a set of fundamentally flawed contracts (mortgages) that are not performing the way they should be (e.g. with the borrower paying their mortgage regularly).

I can only assume that the tack that Treasury is going to take is to move back in the bus from the driver’s seat to the back seat and watch while state and federal agencies start legislating loan modifications and foreclosure moratoria in order to “address” this problem.

That’s also flawed.

And our experience during the Great Depression in terms of foreclosure volumes, asset price recovery (e.g. home prices), points to the solution being less regulation on mortgage foreclosures rather than more.

But so be it. Paulson’s been outvoted and recognizes that the Obama camp will likely be coming in wielding a big stick when it comes to servicers and lenders, and forcing more loan modification behavior into the loss mitigation chaos that exists right now.

So what does it all mean to you and me as to how to buy notes?

It means that the “competition” for the nonperforming notes that you and I are looking for is no longer there.

It means that you should re-double your efforts to reach out to banks now, while they’re hurting from the news that they won’t be able to sell their troubled loans to the government at a better price than you and I would pay when buying notes.

It means that we will see more and more bank merger activity, and with more banks failing, more assets will make it onto the secondary market as new management teams “clean up” their newly-acquired books.

Stay sharp.

Dean

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