Posted by John Behle on April 17, 1999 at 16:19:20:
It’s possible and has been done, but dealing with banks is an art. Banks rarely get very creative. Getting through to a decision maker that can handle the type of deal you describe is another challenge.
A trade of a performing mortgage for an REO or non-performing mortgage would be a great deal for the bank. We’ve had some success with banks, but a great deal more with non-bank institutions like insurance companies that have greater flexibility.
It’s highly improbable to do that type of deal or any other “paper trade” type technique without already having an existing mortgage portfolio. When I first learned about the “Paper Trade” technique from John Berven I immediately ran back to my market place to try it. I found that it didn’d go anywhere until I put together a portfolio of several hundred thousand in mortgages, so that became my focus. Once that was done, deals were possible. It takes some real expertise that we had to develop in finding the deals and negotiating.
To do a deal like you are talking about with the bank, you would likely need to find someone in your area that has existing mortgages and would joint venture the deal with you. A trade of mortgages doesn’t fly with some banks as well as getting them to lend you (or the joint venture partner) the money to buy the REO - secured by the note portolio. Still too creative for most banks.
It works best to start and build up a track record with them on smaller deals. See the archives for postings on “Overtrading” and “banks” for some examples. I think I posted some examples of both large and small deals we’ve done with financial institutions.