Mortgage Notes – What motivates a Lender/Bank Rep to sell Mortgage Notes?

On Buying and Selling Mortgage Notes:

Below is a question I got asked recently over at our
Note Buying Forum.

I thought this was valuable info, so I am sharing it with you here:

“I’ve been reading everything I can about why lenders
would be willing to sell properties at large discounts.

Dean, what would be a lender’s main concerns which would
get them to sell their mortgage notes at deep discounts?

I feel that since we’re trying to get into the minds
of the LMREP, it would be more advantageous to all, if
we could sell our services to their main concerns.”

[My reply:]

NAME – make sure you distinguish (in your thinking
and in your language) properties from loans.
You mentioned both in your question above.

You mention both in a question to a bank rep and if I
were them, I’d immediately write you off as a
knucklehead who doesn’t know a deed of trust from a
deed and wouldn’t respond to any further emails or
calls from you.

Just a word of caution to bone up on your note lingo
before you talk to the banks.

* * * You get one chance to make a good first
impression, when you’re talking to the key
person/gatekeeper when buying mortgage notes. * * *

(How is that for obvious wisdom?)

A few reasons:

Institutional-level Reasons to sell Mortgage Notes:

a) bank’s in the process of merging, or posting
quarterly/annual financials and needs to get assets
off its balance sheet. Quick way is to sell loans

b) bank may have a “relationship” with the borrower,
or there are extenuating circumstances re: the loan
that make the bank want to sell (see Private Access Club
session Roadmap: Week 5 for detailed review of one of these
situations in action)

c) bank may be under pressure (image/marketing, legal
or other) not to take “aggressive” recovery action
(e.g. foreclosure) against borrowers either across the
board (image has been hindered by bad press in FC
action), in a certain geography (Detroit/Cleveland,
hard hit urban areas seen as minority/poor/fraud-rich)
or in a certain situation (1st time minority homebuyers)

d) bank may not want to actually take borrowers to
sale, though having no trouble with foreclosureprocedures
(I’ve bought a mortgage note from one bank
1 week prior to sale b/c they didn’t want to be seen carrying
out the actual FC)

e) loan is upside down and doesn’t warrant recovery
action/expense (small 1sts sub $20K on properties of
similar value may never be foreclosed on by certain
banks – great opps to buy the mortgage note in many cases)

f) bank wants to “price” a part or all of its non-
performing book, in which case it sends out loans to
bid to see what the market would pay for them

Individual Rep Reasons to Sell Mortgage Notes:

a) loss mit rep is “sick” of dealing with a
particular borrower. Never follows through on
reinstatement promise / swears at loss mit rep / ticks
rep off

b) borrower is non-responsive, no contact

c) long foreclosure state / process

d) investor approaches loss mit/secondary marketing
and makes unsolicited offer to buy mortgage notes – wasn’t
originally considered but might be pursued if price is right

e) rep or rep’s direct boss has authorization over
certain level of write-offs and mortgage note sale (unsolicited
or solicited) is within that level (take note here:
e.g. 30% discount on $30K loan is $9K – rep’s boss may
have authorization to write off up to $20K/loan, same
30% discount on $100K loan is over that limit, would
require boss to send “up the line” and takes too much
work for rep and his boss, so they’ll pass)

f) rep needs a few extra bucks to meet monthly
recovery quota – last minute note sale could get them
bonuses (usu. banks, not mtge co’s / wall st / hedge
or pe funds)

Hope this was useful to you.

Let me know what questions YOU have by putting them in
in our very brief SURVEY.

I will do my best to address all your questions related to
buying, selling & brokering AND profiting from Mortgage
Notes for you here.

I hope you enjoyed this post on mortgage notes.