All Forum Posts by: Dan Deppen

I use Madison Management, FCI, Allied, and Note Servicing Center. I don't know if any of them do commercial notes though so you'd have to ask them.

How do you guys find the don't wanters?

Personally the most creative thing I've done is sell 6-7 properties using seller finance, which I don't consider that creative. Although I'll create my first wrap loan before too long.

In my cases convincing the other party is straightforward, since most seller finance buyers can't get other access to mortgages because they are self-employed or some other reason.

As an RMLO I work with investors employing various creative strategies all day every day. There are probably 5-6 basic strategies, with many flavors of each one. I've observed that when someone enters the space and does a deal or two and dials in their strategy in their area they end up doing a lot of them. So they tend to be very repeatable.

To try to keep from writing a novel, I'll give some of my comments on this topic in bullet points:

-As others have said, its not uncommon for newly originated notes to sell at a discount

-The quality and value of new notes values widely. "wild west" crap paper could sell anywhere from a huge discount to not being sellable at all. On the other end of the spectrum some investors create what is basically bank grade paper, and I've seen new seller finance loans sell for up to 102% of UPB.

-There is no consistency among "seller finance notes", you need to look at each one individually. Look at borrower credit, down payment, and how it was originated. Did they use an RMLO and is it compliant with TRID / Dodd Frank / etc?

-If they used an RMLO to originate it, did they use a good one? I recently reviewed an underwriting package from another RMLO. They told the investor / lender it was a solid borrower and their DTI was 27%. When I went through the details their DTI was actually 68%. Plus the way they calculated the income using bank statements was suspect at best, so the DTI may have been 100%.

-If its a high quality loan (good credit, strong down payment, selling price makes sense, etc), then you don't need a pay history. The borrower's past history with other credit lines and their skin in the game is giving you this information.

-If the loan is not top tier (maybe sketchy credit, low down down payment, but still Dodd Frank compliant), then having some seasoning can become important.

-Watch out for notes where the seller inflated the price. There is a strategy out there to buy cheap properties and mark them up, and get unsophisticated borrowers who are comparing their monthly payment to rental rates. For example, buy a $50K property off the MLS and then sell it for $85K with no improvements. Even if the borrower has reasonable credit and can afford the loan these are super high risk.

So to sum this up, a new note selling at a discount isn't a red flag in and of itself. The key is to understand the value of the note so you know what its worth and if there should be a discount or not, and if so how much.

Franco Barile: https://sottileandbarile.com/

I'll be there!

I haven't really observed any significant shifts. There is still tons of supply out there, at least for performing. 

Pricing depends on who the seller is and why they're selling, still a lot of non-uniform pricing.

My underwriting model for existing notes is mostly based on pay history and equity, although there are obviously many other factors.

Red flags are mostly with counterparties, I'm much better at identifying the serious buyers and sellers than I was a few years ago.

I like to send my own letter to the borrower when they miss the first payment. It prompts them to communicate if something is going on, and let's them know we are paying attention. It helps keep them out of the habit of slow paying.

When I was focused mostly on non-performing notes, I would typically sell the reperformers to buy more non-performers. In the last few years where I've been more focused on performing notes I tend to keep them.

 This is who I use.