Bids on non-performing notes

[James Kramer]

So I have been in the note business for a year now and having trouble purchasing notes. I am throwing many bids out there, but many are getting rejected because many of these providers seem to want too much. After talking with one provider, they said I should base my bid off of the BPO provided around 50-60% of the home value. So far I am basing my bids based on UPB because I want to work with the current borrower. I understand if I was a fix and flipper to base off of the value of the actual home, but there are so many factors that come into play that I think basing a bid off of the UPB would be the best. Any suggestions or guidance is appreciated.

Thank you

[Cliff Durrett]

Ive been dealing with notes since 1986 actually.

And yes, now that the bigger companies are buying huge swaths of notes from Fannie etc, the pricing rises. Since they are playing with OPM, they can lose and it really doesnt matter to them.

Sooner or later though they have to sell it for what the secondary market will bear. Just like in hard RE assets, there are many who overpay and dont last.

Ive seen companies raise $10m+, fail at the note business, then pop back up with a different name, raise more money and do the same flawed plan again. As we all know, its just numbers and either it works or it doesnt. 

I buy off of UPB/BPO whichever is lower of the 2. Many of these companies dont seem to even understand notes. It is nice when an underlying asset is much higher than the UPB, but youre buying debt and may never get the asset even if you FC if the spread is great. Someone may buy it at FC.

I currently sell many of the notes that are out of my area that I buy in packages, have one in SC for sale right now.

Let me know what youre looking for.