Where to Source Your Mortgage Note Deals

[Chris Seveney]

OK, I wanted to write a post on Top 5 Sources for Buying Mortgage Notes... 

I have seen a lot of posts on FB and other forums including some here, and people are always saying they cannot find inventory. So...

STEP 1: Before you start hunting for notes, first determine how much capital you actually have. Your buying power dictates where you should focus.

1. Online Marketplaces (Under $100K)
If you are starting with smaller amounts, look at platforms like SNSC (Dave P.),Paperstac, JKP and Rob H. at Fixnotes. "Small" typically means notes under $100,000 UPB. These people and platforms are built for individual investors and are the best place to gain experience.

2. Smaller Funds ($100k - $500K)
If you have a little more dry powder, you can start targeting debt funds. Many prefer buyers who can take multiple assets or small pools at once.

3. Above $500K
This is when you can also start buying loans from whole loan trading platforms like Mission Capital, Garnett, Rams etc. Note that once you get above this level performing loans are selling at 6-7% yields so I would not waste time on them, and the non performing loans also are going to sell higher priced because the buyers cost of capital is significantly less than yours. You can still do very well but these sites are more catered to those buying $2M+. Therefore, while you can get loans from them, I think your hit rate is going to be very low and still recommend #1 and #2.

There are some other ways to get notes as well:

4. Other Note Buyers, Servicers and Asset Managers
Access typically comes through relationships and referrals. This channel becomes more realistic once you have a few deals completed. But this is a great place. I cannot tell you how many deals we have bought and sold when we were getting started from others, especially many here on BP

Last but one I least recommend:

5. Direct Outreach
Consistent contact with smaller institutions and private lenders can uncover inventory that never hits a marketplace. Typically you need a relationship with them.

TLDR version: match your capital to the right source. If you are under $100K, stay focused on marketplaces. If you are over $500K, you can begin approaching larger sellers.

LASTLY: IF YOU ARE JUST A BROKER AND NOT BUYING LOANS, THOSE IN #2 AND ABOVE CAN SNIFF YOU OUT WITHIN 30 SECONDS. DO NOT WASTE YOUR TIME OR THEIR TIME GIVING THEM SOME BS STORY. YOU DO NOT WANT TO BE BRANDED A "JOKER-BROKER"

[Chad U.]

Quote from @Bruce Lynn:

You are the expert here. Is there any chance to buy loans from HML?

Yes as Chris mentions there is a huge uptick in HML loans at the moment. However almost all are still clinging onto getting close to par on their money. Their reasoning and woefully inadequately citing is that the default rate is (oftentimes) in the mid to high teens, so your return will be justified paying this. Well, 9 times out 10 the borrower will not be reinstating (unless it's a finished and listed flip they are trying to sell) so you really have to focus on the property value. And usually it is a flip gone wrong, funds were advanced for the rehab, nothing got done, etc. It is usually lack of oversight by the lender.