Seasoning notes in a declining market - Posted by Kristine-CA

Posted by Mark (NC) on July 17, 2007 at 10:09:15:

Might the answer lie in creative structuring of the note at the outset. Say calculate what you really want in terms of selling price and monthly payments, then juggle interest rates and length of term to drop the face value of the note to create room for the falling market not to reach you. You would have to hold the note long enough for the monthly payments to make up for the discounted selling price, both of the face value of the note and the discount the investor would want on the note.

I am not sure you could reach the break even point in less than 3 years. It would also create instant equity that may lead the buyer to attempt to refi, so you would want a prepayment penalty clause in the terms to make up for that possibility.

The answer is in thinking outside of the box, and I welcome anyone else to critique my thinking on this.

Seasoning notes in a declining market - Posted by Kristine-CA

Posted by Kristine-CA on July 17, 2007 at 08:51:58:

Let’s say I am the seller and I agree to a seller carryback with 10% down.
Purchase price is $200K, FMV is 200K. Because I am working with less than
perfect credit borrowers and I want to eventually sell the note for the best price
possible, I season the note the for 12 months with good payments.

What happens if the collateral is worth less 12 months from now? The face value
of the note is 180K, but property could be worth less.

Which note would require the bigger discount? The unseasoned note? Or the
seasoned note with collateral that has declined in value?

Thanks for your help on this, Kristine