Note Grades? The difference between an A note and C note.

4 Replies

Eddie Speed talks about A notes and C notes. What's make a note a C note vs an A note?

Thanks

@Jonathan D. I have not taken any of his training but for me when I do my due diligence If a note does not fit my criteria I don’t buy it but someone else may. I believe in setting your own criteria - some people may like vacant homes to foreclose on them, some like owner occupied, some like only low crime areas, some like areas with high rental income

Each investor grades their notes differently - for me if it’s a C I am not buying it

I was just at Eddie Speed's Note Expo and heard him using the terms "A" note and "C" note very casually as if we all knew what it meant. I asked someone who owns Eddie's courses what the criteria are for each of these notes and he said it's never been clear, at least to him.

I don't know his specific classification but in general there are multiple categories of notes. For example a 50k first mortgage on a 100k house will have a much better "grade" than that same note on a 25k ghetto house. Each person will have their own characteristics.

Does the house have equity and you'd want to live there? Are the borrowers professionals that you can expect will fall back on their feet? In a state where if you need to foreclose it would take 3 months? A grade

Would you need a bulletproof vest to drive by the house? Is it worth 12k with 20k worth of back taxes? Is the house owner-occupied (by squirrels and vermin)? E grade

I was wondering the same thing also hearing the reference at Note Expo so I did some spidey searching with Google and found this for "A" notes.  

"An "A paper loan" is just as it sounds; a loan with the highest credit grade possible. It normally is going to have the best interest rate, lowest cost, and least amount of non-desirable features when compared to B (often referred to as "Alt-A") and C (or "subprime"). Banks give loans with an A paper grade all of this due to a number of factors. The primary being the low risk of an A paper borrower in defaulting on the loan.

These are not absolutes but an A Paper loan usually falls under these guidelines....

1.) The borrower has a 680 mid-FICO score or higher
2.) The borrower has verifiable income and the loan's Debt-To-Income ratio is less than 35%
3.) The loan's Loan-To-Value ratio is less than 80%
4.) An A Paper borrower normally has at least two months mortgage payments in "liquid reserves". This can be in a checking, savings, investment, or even retirement accounts at any financial institution
5.) The borrower's credit report can not have any (non-medical) outstanding collections. Even if their credit score is above 680. "

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