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