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
