How does the Bank Value the Note amount?

Question

Hi all, If I were to buy a note directly from the bank, Then how do I figure what to offer. Does the bank do a BPO? Or are they taking the value from the amount owed on the note. If the Value of the House is not near what the House used to be worth, then is the bank going out and appraising the property before they sell the note? I am used to doing Short Sales and they always do a BPO to see the current value is.  Is this done with Notes also? Thanks

Jeff Tumbarello · Answer

I would ask your guru's to provide their 1040's that show their income comes from buying and selling notes..

Sam M. · Answer

I sent several unsolicited offers to buy the note and trust deed to several different lenders. My offer was acknowledged but declined. Since then I learned that Fannie will not sell and I know a couple of them were Fannie. 
 It is a highly specialized business and you can't just trust the guru's out there who say it is easy as pie. The truth of the matter is that you will mostly be stuck with pools of whatever they have to sell IF they are selling. My understanding is that you can target specific notes but the success rate will be low.
 Donna Bower teaches a method of starting a SS then switching to just buying the note. I think she said they have a 30%notes/70% SS average. But the price point will be the same as with a SS so I don't see the point.

Jeff Tumbarello · Answer

Bill,
You have to factor in loss FDIC loss sharing agreements. This is really an issue with participation loans, when one side has one of those handy agreements with Sheila Bair

Jeff Tumbarello · Answer

What I have found is that they get a BPO based upon what they need the value to be on their books. I have not met anyone who has been succcessfull in targeting and buying a note from a bank. They do have certain assets that they wish to sell, most are garbage

Bill Gulley · Answer

Yes, depending on the status of the loan, I was referring to like discounts in short sale incentives. Jeff is probably right on here, the BPO is Balance to be Perceived as Ordered, BPO!

I have cleared out specific notes frokm a couple of banks in the past, pre foreclosure, but this does take specific knowledge and agreements by all concerned. Later, I'm off to the lake! Bill

Bill Gulley · Answer

Hi, I don't want to say that the book value of the note, or the par value is irrelevant to you, but it almost is. What you you likely be looking at is much of the same aspects of a short sale. The capacity of the borrower to continue with the loan, the cost of the bank taking and holding the property and the value of the property. Selling the note is another way out of the deal for the bank, what they will accept may be close to the same as in a short sale, but consider any government incentive too, since to my knowledge there is no government program to assist banks in selling notes.

Now, if you're buying the note as a means to avoid foreclosure, with consent of the borrower and the note will be modified for some deal, your purchase price for the note will probably be close to the payoff, but again, what is the alternative for the bank? They will cut the book value to a point where they might be with an alternative loss.

Your purchase of any note will likely be based on your yield requirement, the collateral, the credit history and payment history of the borrower and the maturity. These are considerations that the buyer needs to look at and has nothing to do with the book value the bank has. Good luck! Bill

Note sales do not require a BPO or an appraisal, but if the loan is in default they bank will want to know what the alternative is, so they will probably go down that path first as a customary operation to cure, their first thought is usually not to sell the note. OTH, many notes are bundled and sold in blocks and some may be cherry picked, but this is usually accomplished in a more institutional manner or with companies or brokers that participate.

How does the Bank Value the Note amount?

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