What goes into the pricing of a perfoming note?

[Kelly Byrd]

I'm just exploring note investing and I'm looking for some pointers on how performing notes are priced. I'm hoping there are general guidelines. Looking around quickly on someplace like FCI (not a great resource from what I understand, but I'm just looking to get a feel for the market) it looks like there is a discount for unpaid balances under about $80K, but where notes above that are offered at more than 100% UPB.

I assume a lower LTV and a higher interest rate would drive the price up, but I have not yet figured out the relationship or rules of thumbs. Thanks for any insight.

[Bob E.]

You can expect a 10-12% yield on a brokered note.  Things to consider are

1. How much are you investing relative to the current value of the note (ITV)?  On lower priced properties you generally want to be between 65 and 75%.  
2. If the note pays $400 a month and has a $30,000 balance with a 9% interest rate that is the rate you get if you pay $30,000 for the note.  If you pay 20 or 25k for the note your return will be more.  If you buy the note for 25k and they refine next week you get cashed out at the UPF of 30k.
3. A strong history of 12-24 months (or more) of on time payments will increase the value of the note and reduce the interest rate to a buyer.
4. A borrower with good credit will increase the value of the note.

Hope that helps.  my contact info is on my profile, feel free to reach out if you want to discuss more.