Question on Mortgage Discount When Resold - Posted by Grant DeNormandie

Posted by Bud Branstetter on April 15, 1999 at 24:26:21:

To use your example of an 95,000 note at 8% the p&i would be 690.08. If this were the A credit buyer and the note buyer wanted a 9.5% yield then they would only be willing to pay you $82,900. And that is with you providing the appraisal, title insurance etc.

In order to get more the cash stream needs to be more. This can be done by a higher interest rate, a shorter term, or balloons. The question is what can the buyer afford, then work backward. The lowest return I have seen advertised is just below 8% with an A++ buyer and aged.

Question on Mortgage Discount When Resold - Posted by Grant DeNormandie

Posted by Grant DeNormandie on April 10, 1999 at 07:25:35:

I have a client who is selling his house. I would like to provide the funds to the buyer and take a mortgage on the property. The seller agreed to take 93% of the proceeds as he will not have to pay a commission to a real estate broker. That leaves 7% for me. Do you think it is possible to resell this mortage immediately at a profit in today’s market. What are mortgage buyers looking for in the way of a discount when they buy? The property is in excellent shape, a good location and the buyer has A1 credit plus a very low debt to income ratio.

Also, what kind of documentation are mortgage buyers looking for? The last time I took a conventional mortgage there were 20 or more documents to sign. What do investors look for as a minimum for documentation?

Re: Question on Mortgage Discount When Resold - Posted by Bud Branstetter

Posted by Bud Branstetter on April 11, 1999 at 07:38:38:

Most note buyers have a limit, in the 80% of appraised value range, on what they will invest on a mortgage. So if the sales price was 100K with 10K down and a 90K mortgage, the most a note buyer would pay is 80K. If you bought that 90K note for 93% you could only sell that portion up to 80K.

Very Quickly - Posted by James-IN

Posted by James-IN on April 10, 1999 at 21:39:10:

Grant,

Given the situation you just described, that note can be sold immediately! Chances are, however, you will not get the full 7%. There may be a discount involved and/or processing fees. Even with that said, you should walk away with a 4-5% commission.

As far as the documentation, it really depends on the individual note buyer. Every investor has to do their “due diligence.” Basic docs would usually require:

  1. 1003 on the borrower
  2. tri-merged credit report
  3. cover story (what you are doing)
  4. title work
  5. proof of homeowners insurance
  6. copy of driver and SS card
  7. appraisal (usually national firm)
  8. copy of the mortgage, deed, and promissory note
  9. letter of explaination of derog. credit
  10. discloser statements (if required)
  11. purchase contract or l/o
  12. RESPA documents (if required)
  13. VOE, VOM, paystubs, tax returns (if required)
  14. Assignment Contract
  15. Note Puchase Agreement

I think that covers most of the documents that a note buyer may request. Again, it really depends on the note buyer. Some are fast and loose and others squeak when they walk.

Hope this helps :slight_smile:

James-IN

Re: Question on Mortgage Discount When Resold - Posted by Grant DeNormandie

Posted by Grant DeNormandie on April 11, 1999 at 09:06:09:

This sounds reasonable but are you aware of any way to bifurcate a mortgage secured by a note? After I buy the note the buyer of the house is not likely to cooperate in doing this and I don’t really want to get them involved. The real example is more like this: The house is being sold for 100K. Appraised value is 115K. Seller needs cash within 10 days. Buyer will may put 5K down. Rate should be 8%. I purchase the 95K mortgage for 88K. I would like to get an estimate of what I could resell the note and mortgage. I was told that insurance companies pay close to par with a small discount. What about about private investors?

Re: Terms - Posted by BankRobber

Posted by BankRobber on April 10, 1999 at 22:33:36:

how can you possibly make any kind of estimate of how much of a discount (you estimate 2-3%) the note Seller will have to take without knowing the terms (rate, prepayment penalty, amortization schedule, ballon date) and LTV?

Re: Question on Mortgage Discount When Resold - Posted by Craig

Posted by Craig on April 14, 1999 at 13:28:24:

Grant,

There are note buyers right now that will buy A paper at 90% LTV and up. However you will probably not get par. Making a loan directly to the home buyer would be detrimental to you. Because you will take a discount when when you sell the note. If the seller carries the paper initially then you buy from him for a discount, you can then resell to another investor at less of a discount and make a profit. I figure you know this but I just want to clarify it. A note right now at 8% will require a much heavier discount than if it were at about 10 - 12 percent. Most institutional note buyers yield requirements are paralell to a non conforming lenders rates on a loan with the same credit/collateral. If the note is at 8% and the investors yield requirement is 10.5% then the discount to get that yield will be steep. I don’t have my calculator with me so I can’t give a good example. Send me an email and I will give you some contact info of some institutional investors. Don’t worry I don’t want a piece of the action. Hope this helps.

Re: Question on Mortgage Discount When Resold - Posted by Bud Branstetter

Posted by Bud Branstetter on April 13, 1999 at 17:32:04:

I am not sure we are comunicating completely. Iam am not sure I know what you are trying to accomplish. There is one company that faxed me saying they have a simultaneous closing program up to 90%ltv at 9.5% yield for A credit buyers. With only 5% down they may not do exactly that. But that is what the broker does work between the parties to find the buyer and the seller agreeable terms.

Re: Question on Mortgage Discount When Resold - Posted by David Alexander

Posted by David Alexander on April 11, 1999 at 20:14:07:

are you taking 88k out of your pocket to buy the Note on the 115k house? why give up the profit? i mean if your using the cash anyway, Buy the house for 88k and resell for 120 or so with Owner Financing.
Create two notes, one at 80%(92k and sell immediately to get your cash back), and a second for the balance minus the down payment. Why give up so much profit?

David Alexander

Re: Terms - Posted by James-IN

Posted by James-IN on April 11, 1999 at 23:25:03:

Bankrobber,

I making some assumption for discussion purposes. I would hope that anyone taking advice on this site would make sure to double check for accuracy.

Amend answer to include the following assumptions: IF…the property is in a good shape and location, buyer puts down at least 5%, LTV not greater 90%, no fraud involved, rate is above conventional market, 1+ year prepay, buy works, etc., plus the information Grant stated…then he should have no problem selling the note immediately.

As far as a discount goes, if the guy has A1 credit, there shouldn’t be more than a 3-4% discount. Most likely, this note has a chance (if conditions merit)of being sold at par. Of course, there are always exceptions to everything.

I would hope that Grant would at least consult a couple note buyers FIRST before attempting to do seller financing. It’s always wise to have the note “sold” before it is even created.

Please forgive my error :slight_smile:

James-IN

Re: Question on Mortgage Discount When Resold - Posted by Grant DeNormandie

Posted by Grant DeNormandie on April 13, 1999 at 21:27:48:

I hope I am not making this more complicated than it really is. In a nutshell I want to buy this mortgage at a discount and resell it at a smaller discount allowing for a profit on the transaction.