Real Estate Mortgage Notes

Now that we’ve explained what a mortgage note is and went over the various reasons to invest in notes, let’s dive into the meat of note investing.

Mortgage notes are classified by their recent pay history. There are several different classifications of mortgage notes on BigBidder.com.

Performing: A performing note is a loan that is current, meaning the borrower has made all of their monthly mortgage payments on time.

Re-performing: A re-performing note indicates that the borrower has had repayment issues in the past, but has gotten back on track and made his monthly payments as agreed for at least the last six months.

Sub-performing: A sub-performing note means that the borrower is up to 60 days delinquent or has been delinquent three or more times in the last 12 months.

Non-performing: These are loans that are more than 90 days delinquent. The borrower has defaulted on the terms of the loan, often times resulting in foreclosure of the property.

Next week, we’ll go over how to make money from performing notes.

To read up on previous posts in our Note Investing 101 series, click the links below.

Note Investing 101

1. What is a mortgage note?
2. Real Estate vs. Mortgage Notes
3. Who are the sellers?
4. Why invest in mortgage notes?

Check out these new BigBidder.com auctions for notes backed by some beautiful homes throughout Georgia.

Auction #230-1-9

Classification: Non-performing
Loan Type: ARM
Total Loan Amount: $477,570
Lien Position: First
Interest Rate: 7.4%
Minimum Bid: 73.29%
Bid Deadline: January 21, 2010

Auction #230-1-6

Classification: Non-performing
Loan Type: Fixed
Total Loan Amount: $328,903
Lien Position: First
Interest Rate: 5.4%
Minimum Bid: 54.73%
Bid Deadline: January 21, 2010

Auction #230-1-8

Classification: Non-performing
Loan Type: Fixed
Total Loan Amount: $159,491
Lien Position: First
Interest Rate: 5.5%
Minimum Bid: 31.35%
Bid Deadline: January 21, 2010

Over the last few weeks, we’ve explained what a mortgage note is and how it differs from real property. We also gave a brief explanation of the  various types of secondary market sellers. In today’s entry into the Note Investing 101 series, we’ll discuss what makes mortgage notes such an attractive alternative investment.

So why should you invest in mortgage notes?

1. Unprecedented Deals: For years, all types of financial institutions have bought and sold mortgage notes on the secondary market. In the wake of the 2008 economic crisis, these sellers, many of whom had no intention of holding onto their notes for long, are eager to find buyers. The result? Unprecedented deals on all kinds of mortgage notes. This is your opportunity to take advantage of a down economy and emerge with a robust portfolio.

2. Higher ROI: You can realize much higher returns from mortgage notes than from traditional institutional investments like bonds, CD’s, or savings accounts (we’ll go over some examples of successful mortgage note investing in a future post).

3. Secured Investment: Unlike stocks, bonds or other traditional investment vehicles, your note investment is secured by real property.

4. No Ownership Hassles: Mortgage notes offer the unique opportunity to invest in real estate without dealing with the hassles of property ownership. No more chasing tenants for rent, dealing with a property manager, or worrying about minor repairs that end up costing thousands of dollars. The borrower, not the note holder, is responsible for property upkeep, maintenance and taxes.

5. Diversification: Mortgage notes are a great way to diversify your investment portfolio.

6. Flexibility & Versatility: Mortgage notes are an incredibly versatile investment. There truly is something for every type of investment strategy.

Next up in our Note Investing 101 series, we’ll go over some of the various classifications of mortgage notes on BigBidder.com.

To read up on previous posts in this series, click the links below.

Note Investing 101

1. What is a mortgage note?
2. Real Estate vs. Mortgage Notes
3. Who are the sellers?

Today, in this latest entry in our Note Investing 101 series, we’ll go over the nature of the secondary market for mortgage notes: who are the sellers, and why are they selling?

Historically, the secondary market is where all types of investors and financial institutions have bought and sold mortgage notes. When a mortgage originator (such as a bank or a mortgage company like Countrywide Financial) makes a home loan, they can either keep the loan on their books, or, more often than not, they can try to sell the note as a financial instrument on the secondary market. In addition to mortgage originators, there are also companies such as investment banks, hedge funds and equity funds who are looking to sell loans that they themselves had bought on the secondary market.

So why are these institutions selling their notes? After the subprime mortgage meltdown, most of the traditional secondary market buyers, such as pension funds, hedge funds and investment banks, abruptly left the table. Suddenly, supply far exceeded demand on the secondary market. As a result, sellers have been left with hundreds, and in many cases thousands, of mortgage notes that they would quickly like to clean off their balance sheets. This means unprecedented deals for every BigBidder.com investor.

Next up on the Note Investing 101 agenda, we’ll answer that all-important question: why should you invest in mortgage notes?

To read up on previous posts in this series, click the links below.

Note Investing 101

1. What is a mortgage note?
2. Real Estate vs. Mortgage Notes

Yesterday, we answered the abundantly popular question, what exactly is a mortgage note? Today, we continue our Note Investing 101 series by tackling another common query: what’s the difference between investing in a mortgage note and investing in real estate?

Investing in property is what most people (including many BigBidder.com investors) are familiar with. When you purchase property, you make money as the property value increases, or you can earn rental income. As the owner, it is your responsibility to maintain the property, manage any tenants, and pay property taxes and insurance.

When you invest in a mortgage note, you’re buying the contractual obligation that the borrower has entered into. Essentially, you take the place of the lender. The borrower remains responsible for property maintenance and taxes, and makes his monthly mortgage payments to you, the note holder. While you are not buying the property itself, the note is still secured by the property. This means that if the borrower defaults on the loan, you could end up owning the property.

A mortgage note is the rare type of investment that is backed by something tangible: property. This last point is very important to understand, as it is part of what makes mortgage notes such an attractive alternative investment.

Next up on the Note Investing 101 agenda, we’ll go over the nature of the secondary market: who are the sellers, and why are they selling in the first place?

To read up on previous posts in this series, click the links below.

Note Investing 101

1. What is a mortgage note?
2. Real Estate vs. Mortgage Notes

Mortgage note investing is hardly a novel idea. Yet until BigBidder.com launched, note investing was largely an insider game restricted to Wall Street firms with the financial wherewithal to purchase huge pools of loans. In fact, most people never had the opportunity to purchase an individual mortgage note until BigBidder.com came along. So it’s no surprise that many people are relatively unfamiliar with note investing.

As with any new investment, people want to understand what they’re getting into before they jump in. To help people learn more about note investing, we’ve developed a series of blog posts titled Note Investing 101, and over the next few weeks, we’ll be going over the basics of mortgage note investing, covering a new topic each blog post. Today, we answer the question, what is a mortgage note?

A mortgage note is a promissory note stating the principal amount due, the rate of interest, and the terms for repayment of the loan. The borrower signing the note, and any cosigners, are personally liable for the repayment of the debt. The collateral used to secure the note is real property.

Generally speaking, these are home loans made to buy or refinance property. A borrower gets a mortgage from the bank and makes their monthly mortgage payment to whomever owns the note — whether it be the bank, a hedge fund, or an individual such as yourself.

Next time, we’ll go over the differences between investing in real estate and investing in mortgage notes.

Over at BigBidder.com, we’re watching the exciting conclusion to our third Last Call auction of the month! Multiple bidders have stepped up to compete for this non-performing mortgage note made to purchase a home in Naples, Florida. With a minimum bid of just 10 percent of the total loan amount, we had a feeling this note would generation some substantial interest.

The recent bidding activity across a wide range of notes proves that people are starting to realize the potential and versatility of note investing. We received a record number of bids on a few performing notes back in the beginning of the month, a sign that some investors seek the relative security afforded by a performing loan investment. Meanwhile, the recent Last Call action for this non-performing note in Florida demonstrates that there are still many buyers out there looking to take advantage of heavily discounted distressed assets.

Mortgage note investing on BigBidder.com does require a bit more mental legwork (i.e. background research, planning, an understanding of the basics of note investing) than simply buying stock on E*Trade. However, in return, investors on BigBidder.com gain access to a lucrative alternative investment that was previously only available to Wall Street insiders and those whose rolodex was filled to the brim with financial institution executives. There truly has never been a better time to invest in notes. The deals are unprecedented and the opportunities are limitless. Head over to BigBidder.com today to get started!

We’ve just added some new notes for auction on BigBidder.com, and with minimum bids of just 10% of the total loan amount, these may be our biggest steals yet! Click on the pictures below to check out the auctions for yourself. To view more information on each note, simply register an account at BigBidder.com. It is free, and allows you to save searches using specific loan criteria.

NOTE: Remember, at BigBidder.com, bids are made in terms of a percentage of the total loan amount.

Auction #136-1-3

Auction #136-1-4

Auction #136-1-7

Two auctions for performing notes on BigBidder.com ended recently with successful sales after receiving dozens of bids from a number of interested buyers, dispelling the myth that auctions only work for distressed assets. The two auctions yielded almost 40 bids combined, with Last Call®, our patent-pending bid extension process, lasting for days.

Both notes were performing loans made to purchase beautifully built K Hovnanian homes. The combined balance on the two loans was over $1 million. These were not troubled loans, and they were not going to sell at the steep discounts of 60% or more that often characterize distressed asset auctions. But in a market saturated with such assets, there are still many buyers who seek the relative safety that a performing note investment offers.

At BigBidder.com, you can find auctions for mortgage notes of all classes located across the country. Whether you’re looking for the upside potential of a heavily discounted sub-performing note, or the relative security afforded by a consistently performing loan, there is truly something for everyone on BigBidder.com.

The heat is on at BigBidder.com, where three auctions for loans made to purchase K. Hovnanian homes have entered Last Call, our patent-pending process that extends the bid deadline in one hour increments until no more bids are received, giving everyone a fair chance to submit new bids before the auction ends.

Head over to BigBidder.com today to check out the exciting conclusion to these three auctions. Hurry! There’s no telling how long Last Call will last. Click the links below to check out each auction.

Auction #162-1-1

Auction #162-1-2

Auction #162-1-3