Small Second Note - Posted by JRook

Posted by Sean on March 10, 2000 at 16:22:44:

We’ve all just been assuming that it’s a high LTV second, maybe it isn’t.

Small Second Note - Posted by JRook

Posted by JRook on March 08, 2000 at 22:18:57:

I have a small second note on a single family home. The note is as follows: $8700, 10 years, 11.0% interest, $119.84 payment. The note is seasond only four months. I sent a letter to the payor’s of the note asking if they were interested in paying off the note for a heavy discount. I offered them a 40% discount, and it’s been about 2 weeks now and I have received no calls.

I also sent a letter to a local investor who buys small notes, offering to sell him the note at a 50% discount. No response from this investor either. My question is do these discounts sound reasonable? and would anyone have a reliable source for buyers of small second notes. I’m located in New York, the first note has already been sold.

Thanks… John

Critical details - Posted by John Behle

Posted by John Behle on March 10, 2000 at 13:56:25:

Without knowing the LTV ratio and the ratio of the first to the second, there is no way to tell why you are getting no response.

You mention the second, but we would need to know the amount of the first and the value of the property. As Michael mentioned, if the ratio is high, the market for it is low.

A payor might not respond because they do not have cash and if the LTV is high, could not get financing. The investor likely didn’t respond because there was not enough information or the LTV was too high.

If you would like to give us these details we could help more.

Important Detail Missing - Posted by Sean

Posted by Sean on March 09, 2000 at 21:40:04:

Like Michael said this type of note has such a high LTV. As such an investor can’t look to the property for recourse. It might as well be an unsecured loan.

Accordingly it needs to be given the same underwriting that an unsecured loan would be given and that involves viewing the payor’s credit and usually obtaining a FICO score, which is a numeric measurement of a person’s creditworthiness. A high FICO score is better than a low one.

If your borrower has a very fine FICO score, such as 720, you might be able to get $6500 for the note. If your borrower’s FICO score is not so fine even $3300 might be too much to expect. What kind of credit does your payor have?

Limited marketability for 2nd liens - Posted by Michael Morrongiello

Posted by Michael Morrongiello on March 09, 2000 at 14:10:44:

You hold what sounds like and is commonly called a “Throw away” 2nd lien note. These notes typcially sit behind a new bank 1st lien where the borrower obtained a 75% 80% LTV originated loan. Because the borrowers probably put down no more than 10% and the sher size of the 1st lien in front of that 2nd lien, your note is in a very tenuous position at best. Some might argue that the 2nd lien mortgage is little better than a credit card type debt. As a consequence the marketability of this type of paper is limited at best.

If the 1st lien goes bad, you will be faced with having to feed that loan while you incur legal expenses and court costs to foreclose on your 2nd lien. Any equity that might have existed can evaporate very quickly.

These types of “throw away” 2nd lien typically can sell for 30% -35% of the outstanding balance due. At that type of discount the potential return to an investor makes up for the RISK.

Michael Morrongiello

Re: Small Second Note - Posted by Keith F Hunt

Posted by Keith F Hunt on March 09, 2000 at 09:56:13:

John I am also selling a second note and found I have submitted my note there just today and have not heard back as of yet but you might give them a try good luck and God Bless