PERFORMING NOTE OUTCOMES

[Robert Harpster]

Curious about realistic expectations for outcome of a performing note. Example - A note modified a year ago to lower payment and get borrower making regular payments again. New 15 year amortization at 10% and approx 165 payments remaining. LTV of 55%. P&I payment approx $425 per month.

In your experience, what is most likely scenario of this note? Borrower pays to end of note? Home is sold in 4-5 years and note paid-off? Borrower refinances to a lower rate after 4-5 years and pays-off? Borrower stops paying or falls behind again?  Note holder sells the note after 1-2 years? 

Just looking for thoughts based on past experiences.

[Dan Deppen]

Originally posted by @Eran Lifshitz:

Originally posted by @Brian Mcmenamin:

I got into notes about 3 years ago. All my performers are tied to my Self-Directed IRA so I'm sitting on them until I'm 65 if need be-haha. I think all of your scenarios could potentially happen. Recently, I have had my borrowers starting to pay down their principal which works well for me too since that will be cash I can leverage to purchase other performing notes.

I'm not sure if that helps your question at all, but I think

@Martin Saenz or @Masaki Maeda might be able to help you with more details on their experiences.

Not sure I understand what do you mean by "recently your borrowers started to pay down their principal".

Borrowers should pay P&I (principal & Interest) month by month (not to mention T&I - Taxes & Insurance).

This is what loans are about.

BTW - What is so powerful in amortized loans is at the beginning of the loan most of the monthly payment is going to the interest and not the the principal, what cause your UPB to stay high in the first few years (depends on loan terms & interest of course) and give you another exit strategy (selling it as performing after 1-2 years of consistent payment).

This is what so good in "being the bank".

Eran

I believe he meant the borrowers began paying extra principal each month. 

This is great when it happens because your yield to maturity really spikes, because whatever discount you purchased the loan at is being caputred a lot faster than if they just paid the normal P&I every month.