Hypothecate - loan notes

[Eli Konig]

Hi all, does anyone here know of A platform or an official bank (not individuals) that lends on the collateral of a loan note that you are holding?

[Tom Scott]

@Eli Konig Hypothecating notes on a one-off basis is called note-on-note financing and is usually done with commercial mortgages just because the lender has to make the return worth the due diligence. I don’t know how low these go but I’m guessing a lender wouldn’t be interested until the upb of a note is somewhere above $1MM.

For financing portfolios of notes, the lower end of the market is very fragmented. I would call the lower end of the market a loan size under $20MM. When I say loan size I mean the loan from your lender. The lower end of the market is dominated by small banks and credit unions with a few non-bank financing companies sprinkled in. These lenders will typically be interested in hypothecation financing arrangements after establishing a relationship like with a deposit account.

You should look for these lenders to currently have asset based financing platforms in addition to real estate financing. The reason for this is if they’re comfortable financing “assets” they will be closer to understanding note on note financing. Also if they finance single family and commercial real estate then they at least understand the collateral of mortgages.

It would probably take a small book to get all of the information out so let me know if you have any specific questions but that might be enough to get your wheels spinning or at least help narrow down a list of lenders you want to call.