Two Distinct Categories of Non Performing Notes

6 Replies

In the commercial mortgage space we have found that NPN investments can be divided between (1) purchasing NPNs in which we’ve had no or minimal contact with the borrower, and (2) purchasing NPNs in which we’ve worked out details of a restructuring with the borrower prior to purchasing the note Although the following is in no way a scientific, statistically verifiable conclusion, here is what we’ve concluded through empirical evidence 1 - purchase discounts from UPB do not differ either way 2 - having borrower agreement before note purchase results in much greater chance of creating a reperforming note 3 - having borrower agreement before note purchase results in much less chance of having to foreclose 4 - having borrower agreement before note purchase results in borrower seeing us as an ally not as an enemy Aside from 1 above, the results are exactly what you’d expect. Our conclusion is also not surprising; if you want a high yielding performing note then negotiate a deal with the delinquent borrower before you purchase the note (if you can’t then don’t purchase the note!); if you wouldn’t mind or want to eventually own the real estate then purchase the NPN ‘blind’. I would welcome any comments

I think in a commercial setting this would work great. its B to B  as it where..  in the resi space.

the resident is usually not very sophisticated and has lived for free for a long time.. they are use to ducking creditors so will kind of tell you what you want to hear..  It would be interesting to see how that played out with  homeowners.. My personal experience with defaulted homeowners Is that I end up owning the property almost always..

@Don Konipol I though as a Residential note buyer, you could not contact the borrower. Is that not the case in commercial? It would be great if we could skip trace a homeowner before we bought to let them know we want to work something out. I was under the impression it was taboo...

Originally posted by @Christopher Winkler :

@Don Konipol I though as a Residential note buyer, you could not contact the borrower. Is that not the case in commercial? It would be great if we could skip trace a homeowner before we bought to let them know we want to work something out. I was under the impression it was taboo...

 My understanding was that it was illegal for residential.

@Dan Deppen The reasoning for the heavy handed regulation of consumer products and services is that consumers are not on equal footing with businesses as to experience, knowledge and expertise, may not have access to legal advice, are unsophisticated, and therefore in need of governmental consumer protection. A commercial mortgage is considered a transaction between two businesses who have access to legal advice, and should be knowledgeable in this space, and therefore consumer protection laws and rules do not apply.