Price a Non-Performing Note

[Sean M.]

Before I ask this, I know people are going to respond that it depends - and I know that it is true that it does depend - but I'm not asking for an exact answer, just a rule of thumb/ball park of what a reasonable discount rate for determining the price to pay for a non-performing 2nd note? And do you include the back payments as part of the return or is based on just the UPB?

As an example, in the case of a 1st PN, it also depends, but the range seems to be enough of a discount that the buyer earns roughly a 12-16% return, with 14% coming up a lot. I would think you'd want at least the 14% for a NPN plus a big bump for the added risk, so what discount rates are people using? Obviously the bigger the discount rate the better, but what is (generally) market. I know that prices shift, that they generally go up when the notes are secured against house with enough equity to cover the UPB or if the 1st is current when buying a 2nd, etc - but as a rule of thumb, what is a reasonable offer and what is crazy talk?