Notes From Banks - Question

[Hannah Reichert]

Do you need to be an accredited investor to buy notes directly from banks? I didn't think so from the courses I've taken, but I recently listened to a podcast that suggested it, so wanted to see what others had experience with. Thank you.

[Andy Mirza]

@Hannah Reichert No, you don't have to be an accredited investor to buy whole loans from banks. All that matters is the relationships you have with the loan traders and their perceived ability that you'll close on time. Be sure you have your funds ready and available to deploy for anything you place bids on.

Accredited investor status is important when dealing with Reg D, 506(b) and 506 (c) private placement offerings. In the 506(b) offering an investor/subscriber needs to self identify as accredited or non-accredited. For 506(c) offerings, all investors/subscribers need to be accredited and have the documentation to prove it.

[Hannah Reichert]

@Andy Mirza That is helpful, thank you!

[Marco Bario]

@Hannah Reichert - Just curious. Which podcast/podcast guest said that one needs to be accredited to purchase notes from banks? And why did they believe banks specifically?

[Hannah Reichert]

@Marco Bario It was the Naked Notes podcast, owners of Note Assistance Program. It was one of their earlier episodes, but their language was enough for me to question what I thought I knew. I'm thinking the goal was for people to use their fund instead of trying to go bank direct, but regardless, glad I got clarification!

[Marco Bario]

@Hannah Reichert - I can't say for sure but it's possible you're correct about their goal. 

[Alecia Bolton]

@Hannah Reichert I'm a member of the Note Assistance Program and I'd be curious to hear what episode that was.  I've never heard them say that.  They have a trade desk, so of course they would like you to buy your notes through them, but they don't discourage you from buying elsewhere.  They don't have a fund.

What was said above is correct, you only need to be accredited for certain offerings.  

[Hannah Reichert]

@Alecia Bolton It was a really early episode of theirs, and so far, I haven't heard them insinuate that again. I think likely it was just a poor framing of words!

[Tracy Z. Rewey]

I second @Andy Mirza  This definition from the SEC Investor.gov site is helpful:

Under the federal securities laws, a company that offers or sells its
securities must register the securities with the SEC or find an
exemption from the registration requirements. The federal securities
laws provide companies with a number of exemptions. For some of the
exemptions, such as Rule 506 of Regulation D, a company may sell its securities to what are known as accredited investors. The term accredited investor is defined in Rule 501 of Regulation D.

The whole loan differentiation that Andy mentioned is also an important distinction.