All Forum Posts by: Mike Hartzog

@Dion DePaoli Thanks for the additional insight here.  I imagine that handling something like this is not a new thing for an established servicer. 

Gentlemen,

Thanks for your responses on this. I have seen this a number of times reviewing assets but have never actually purchased one of them. I am looking at another one now, which prompted me to tap the BP brain trust.

@Bob E. Yes, the note specifies the payment amount, and the payment amount is incorrect (overstated) based on the other terms cited; rate, number of payments, and original balance. Aside from being a pain at the moment, I agree that this could potentially be a win/win scenario for buyer and borrower.

@Dion DePaoli I think you hit the nail on the head here. In this case, because the borrower has been making larger payments than necessary, the buyer must scrutinize the payment history and be assured that the overage was properly applied to principal. The late charges must also be scrutinized. If the accounting was improperly done at the servicing end the UPB could be overstated. Informing the seller, of course, would be a decision based on whether or not the issue favors seller or buyer. In this case it may be neutral, or it could favor the seller if UPB is overstated. (This purchase based on % of UPB.)

@Boyd McClean I like your idea of having the seller fix the issue prior to purchase.  On the other hand it could open a can or worms with the borrower.  My thinking is that a note like this is not suitable for sale to passive note investors who are not working with notes on a professional basis.  If the note is intended as a long term hold, then it might be fine to let it ride as is and simply make sure the accounting is done properly at the servicer.

Follow-up Question: Assuming a fix is needed, what would that look like? I am thinking one component of it could be an addendum to the note. Another aspect could be an account statement from the servicer which would include UPB and payment amount. Thoughts?

My rate discrepancy was supposed to be .5%, not .05%.  

First things first... Happy New Year everyone!  I hope your 2015 is off to a good start. 

I have a hypothetical scenario for you to ponder. Let's say you are looking at purchasing a performing note, but after doing that math on the note terms you realize that the payment called out in the note is a bit higher than it should be. The P&I payment the borrower has been paying since 2009 translates to a rate .05% higher than the rate called out on the note. The note term is 25 years, so there is plenty of UPB remaining.

This is clearly not a great situation for the note purchaser but lets say for sake of argument that we are getting a very nice discount on the note so we are inclined to try to make the deal work.  Let's also say that the borrower has no idea there is an error and neither does the seller but you, the purchaser, are an ethical and honest business person so if you purchase the note you want to fix the issue rather than bury them.

So the question is, what would you do in this situation?  Would you walk away?  If not, how would you try to work with both the seller and the borrower?  What potential legal liabilities do you see here?

@Efrain Gallardo 

Discount is generally a matter for negotiation, and depends on the quality of the collateral, note terms, borrower, etc.  So there is no standard.  If you are trying to hit a yield of 13% and you know the rate of your note, number of payments sold, and payment amount, you can use math to calculate both the principal sold and sell price.  I can help with that if that's what you are trying to do.

@Jean Paul Rousseau 

I can't answer your question about CSC.  I use them for other purposes, specifically eRecording, mortgage assignment prep, and registered agency in certain states.  I think your best course here is to take Bill's advice and contact the SOC to get clear on the requirements and if there is something you need a local (in the state) entity for, calling CSC might be a good place to start. 

@Jean Paul Rousseau 

You might try calling CSC.  They may be able to help directly or point you in the right direction.

@Gilbert Ross Jr 

Hi Gilbert - Shoot me an email.  I can provide a referral and some cost data.  [email protected]

@Bill Gulley 

Bill you are definitely not on my ignore list. :-)  I was scanning a bit on this thread and I guess I just missed it. 

@Jay Hinrichs 

I absolutely understand your perspective. I invest in performing notes as well and am very interested in the HML space. I think that a number of these strategies can fit together nicely if combined in the right way.