Would you buy a note that..

[Sean H.]

I am a bit curious if there are any paper investors out there who would buy a note that is secured by a property roughly at 50-60% of the note's value (ex: note for $100k, property value at $50k). The note would be for 30 yrs, performing and guaranteed at a 20% discount.

How long would you want to see it perform before you were interested?

[Bill Gulley]

Originally posted by @Wayne Brooks:

Bill, in my great guy/not so note experienced opinion.....conservatively I would assume there is no reliable avenue for collection, outside of the property. Property value at $50k, UPB at $100k....yep, to me UPB is irrelevant.

I wasn't picking Wayne, I understand your thinking and most would probably go there and we may end up there as to the value!

The UBP is very relevant, it's the total amortized over the period of expected payments. In this case, the UBP may be adjusted to an acceptable LTV reflecting the risk assumed. But, since we don't know the nature of the deal, having no information on a maker we can't say yet. It's the note rate that is rather irrelevant other than in setting the payment as amortized. You use the payment required in paying off the UBP over the term to set the annuity of payments to be received, the term remaining, your yield requirement and solve value for the offer to receive the UBP. The UBP is what you're buying with a performing note and, if a deficiency is possible on any slow pay or NPN.

Now, if this is just an underwater home, I'd be slashing to a LTV. If it's a commercial note, made by a rather strong company or by another strong borrower, it can be worth more and if it's not considered by you and it is considered by another buyer you can miss out on a good note. If there is money on the table I'd want it and if it's really there, you can't just ignore it and expect the holder to give it to you for nothing, not usually.

You could, and more astute buyers may, consider the borrower and the unsecured portion of the debt. Unsecured notes are sold as well. :)