Re: Open Market Mortgage Trading Operations? - Posted by David Butler
Posted by David Butler on June 04, 2007 at 11:49:42:
Hello Robert,
You have opened with a very broad question, that has no definitive answer, and of the possible answers, each would be qualified by “it depends”. Also need a clearer picture with regard to your comments “have offers in hundreds of millions…” and “right people to play in their league”.
What offers? A company trying to dump, i.e. offering
to sell their bad loan paper?
What league?
What are the right people?
But the first thing to be aware of is that our side of the mortgage industry is focused on “private seller carryback purchase-money mortgage notes”, and other forms of private cash flow instruments which, in general, are exempt from any state or federal securities registration requirements.
This market is marked by several institutional note buyers who purchase performing product in general, and mostly from individuals per se. They also don’t make forward commitments to traditional lending institutions to purchase $10M, $5M, $2M, or even $1M, of performing RE loan paper… much less non-performing paper.
In fact, you would be hard-pressed to find an institutional note-buyer who would invest that much one time, on a regular monthly basis. That’s the purview of Wall Street investment bankers, pensions funds, insurance companies, and related large block funding sources. Since those are similar sources to where the larger note buyers obtain their funds, they would be competing against themselves so to speak, trying to reinvest right back into the traditional lending markets.
If it is possible to “cherry pick” a portfolio from time to time, you may be able to sell off $1Million to $2Million of these once or twice a year, provided these are all performing senior position notes, and either prime conventional, or high-quality subprime loans, with fixed rate fully amortizing repayment schedules.
And, there are “spot” buyers in and out of our markets looking for nonperforming or default paper, in smaller quantities. Some may buy in the several Million$$$ occasionally, but usually smaller total dollar purchases. Some of these investors are looking for a “back-door” into obtaining the underlying real estate in order to resell at a profit. Others look to purchase with the idea of keeping the current payors in the property and restructuring the debt load to turn the paper into performing paper.
I purchase notes in bulk (portfolios), but I am a small individual note buyer, with my maximum investment in any one deal being about $300,000 to possibly $500,000 at any given time. And I invest primarily in paper where I am able to routinely earn 20% or higher yields.
We do have some interest in non-performing SENIOR position notes purchased in bundles of $1Million or less at present; preferably purchase money notes secured by real estate. Offering price on these is 55 cents on the dollar - OR LESS - depending on the other factors in the deal. Main purpose of buying these is for restructuring, and allowing for loss mitigation on those we ultimately have to foreclose out, and resell in a declining market environment!
If you are experienced working for “Wall Street type investment bankers”, and/or good contacts in that industry so you can justify spending the time acting as a finder for moving the assets from one bank to another; and/or you have good contacts in the public
mortgage industry, including loss mitigation and asset liquidation companies, this might be a very good opportunity for you.
Otherwise, you will need to contemplate whether or not it is a luxury you can afford to put time into, if your intent is to build a private cash flow operation, as a private note broker/investor.
Best wishes for your success either way, and…
Have Fun For A Living
David P. Butler