What Strategies Do You Use to Value & Sell Performing Notes?
Member since 2025 · 85 posts · 17 votes
What Strategies Do You Use to Value & Sell Performing Notes?
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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesQuote from @Victoria OHare:
Hello Everyone,
I’ve been focusing lately on buying and selling residential mortgage notes, particularly first-position, performing notes. I'm curious to hear how others in this space are valuing and exiting notes.
A few discussion questions:
-
What metrics do you weigh most heavily (LTV, payment history, discount rate, etc.)?
-
When do you decide to hold a note vs sell it?
-
For those who sell, how do you find buyers and structure closing?
Happy to share what I look for as a note buyer too, if that’s helpful for others.
The first thing I look at is the ROI - yield to maturity. So I calculate what my annualized return would be based on the current payments, term of the loan and asking price. If the yield/return does not meet my minimum requirement I’ll try to determine the probability that the seller will accept an offer at a price that does provide my minimum ROi.
Assuming the above is positive, I will utilize all available information; LTV, property type, specific geographical market, payment history, etc. to determine if the note fits into my acceptable risk parameters. If it does we’re good to move forward. If not, I decide if there is a minimum ROI for which I am willing to accept the risk.
Non performing notes are a little different. I divide those into two parts. First is the notes that with restructuring can be made performing. Those follow the above criteria, albeit with a much higher minimum ROI. The other part are those that will result in property ownership. That’s a whole different set of parameters.
3 Replies
- 11moDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votesAlthough my expertise is commercial mortgage notes - I occasionally invest in a residential note.
Quote from @Victoria OHare:
Hello Everyone,
I’ve been focusing lately on buying and selling residential mortgage notes, particularly first-position, performing notes. I'm curious to hear how others in this space are valuing and exiting notes.
A few discussion questions:
-
What metrics do you weigh most heavily (LTV, payment history, discount rate, etc.)?
-
When do you decide to hold a note vs sell it?
-
For those who sell, how do you find buyers and structure closing?
Happy to share what I look for as a note buyer too, if that’s helpful for others.
The first thing I look at is the ROI - yield to maturity. So I calculate what my annualized return would be based on the current payments, term of the loan and asking price. If the yield/return does not meet my minimum requirement I’ll try to determine the probability that the seller will accept an offer at a price that does provide my minimum ROi.
Assuming the above is positive, I will utilize all available information; LTV, property type, specific geographical market, payment history, etc. to determine if the note fits into my acceptable risk parameters. If it does we’re good to move forward. If not, I decide if there is a minimum ROI for which I am willing to accept the risk.
Non performing notes are a little different. I divide those into two parts. First is the notes that with restructuring can be made performing. Those follow the above criteria, albeit with a much higher minimum ROI. The other part are those that will result in property ownership. That’s a whole different set of parameters. -
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes10mo
Quote from @Victoria OHare:
Hello Everyone,
I’ve been focusing lately on buying and selling residential mortgage notes, particularly first-position, performing notes. I'm curious to hear how others in this space are valuing and exiting notes.
A few discussion questions:
-
What metrics do you weigh most heavily (LTV, payment history, discount rate, etc.)?
-
When do you decide to hold a note vs sell it?
-
For those who sell, how do you find buyers and structure closing?
Happy to share what I look for as a note buyer too, if that’s helpful for others.
Have you pulled the trigger on a performing loan?
7e investments53 Reviews -
- Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes9mo
35 year banker/lender here that owns a mortgage company...so we do this all day long every day. One of my early mentors said to me "the three most important things in lending are ability, ability, and ability" (so, basically "capacity" in "the three c's of lending". We want to understand the exit strategy first. Collateral is important, but we always price asking two questions about that, 1) what do we make if they pay and 2) what do we make if they don't. We calculate in our cost of funds, a reasonable profit, a "risk premium" based on the factors that you mentioned above, and then we back into our pricing. Regarding your second and third bullet points, we have a really strong credit and special assets background as some of us actually worked in "special assets" for banks selling or working out of bad loans, so we hold all of our NPLs. We'll usually sell the ones that perform, reperform, or the ones that we originate through our NMLS-licensed mortgage company. Most of those we sell to are larger institutional funds, but the smaller ones we'll sell to individuals looking to hold performing loans. Selling a loan doesn't require a closing agent and most of the deals we sell are with people we've working with before, so we have a purchase/sale agreement, an assignment of mortgage, and an alonge for the note. It also depends on the servicer the buyer wants to use, but for commercial loans they sometimes don't use one. Happy to discuss the process with you. We've done it a very, very long time.
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