This section includes a huge amount of value for note investors as they research assets for sale. Scroll down to the bottom of this page to find six modules to take you in-depth into the critical reports and data-points necessary to understand and properly analyze before you purchase a performing or non-performing mortgage note.
This page is your reference for the high-level process and will help connect the dots as you work through each of the modules at the bottom of this page. Some of the data you will be reviewing will come directly from the seller and will not be found from any outside vendor or data provider. We will cover this information below:
Prior to making your final offer you should be provided access to scanned images of the original collateral documents. The most critical of these are the note, mortgage, assignment and allonge.
Note: The note includes the original terms between the borrower and lender. It might be called an Equity Reserve Agreement or Home Equity Line of Credit. If you’re confused, look for a document signed by the borrower including the terms. Compare the Note terms with the payment amount, interest rate, original balance, etc included on the seller’s tape.
Allonge: The allonge is the endorsement of the note which transfers the note to another company. This may exist as an attachment to or a stamp directly on the last page or back of the note. The general language is “Pay to the order of _______ (new owner) without recourse _______ (previous owner). When reviewing the allonge, you should make sure that there is a complete chain from the originator of the Note through to the seller’s company.
Mortgage: Also called the security instrument or Deed of Trust, the Mortgage is the document that attaches the debt to a property and should be recorded in the county records to create a lien. Make sure the Mortgage is recorded by looking for a stamp from the county recorder. This will typically include an instrument number or book/page number and will either be a stamp or a sticker on the front or back of the mortgage.
Assignment: Just like the allonge transfers ownership of the Note, the assignment transfers ownership of the Mortgage (or Deed of Trust). Make sure you see a chain of assignments from the originator until the seller’s entity (just like with the allonge). Unlike the allonge, the assignment is recorded in the county records. Make sure to see the recorder’s stamp on the assignments included in the chain. You may find that some of the assignments are recorded but the final assignments in the chain are unrecorded and may need to be filed before you can record the assignment to your entity.
Modification: Many non-performing loans have been modified, especially if you are analyzing a re-performing loan for purchase. The modification is typically recorded and will change the terms of the loan. If the terms of the note don’t match the terms on the seller’s tape, see if you can find a modification agreement on file.
Forbearance Agreement: A forbearance agreement is a type of resolution or workout agreement that is not recorded in the county records. This is a temporary payment agreement that gives the borrower an opportunity to start a trial payment plan. If you see a forbearance agreement in the borrower’s file, make sure to look at the dates to determine when the loan will change back to the original terms or will need to be renegotiated.
Title Policy: Most institutionally originated loans will include a title insurance policy. This policy protects the lender from any issue with title. Take a look at this Exceptions section of this document to see if the loan was originated as a senior lien or if it was junior from the start.
Loan Application: Sometimes the loan application is not included in the seller’s collateral images but if available this will give you an idea of the borrower’s occupation and other details from origination. You will also find the borrower’s social security number on this document if you need it to pull a credit report or run a skip trace.
If you’re researching a re-performing loan to purchase, the servicing records are imperative to closely review. These documents include all of the contact between the servicer and the borrower along with the record of payments received.
Payoff Statement: They payoff statement shows the total balance due in excess of the unpaid principal balance (UPB). This will show the past due interest, late fees and other charges owed by the borrower. If the loan is performing, look for the borrower’s most recent statement to confirm the UPB is accurate to what is included on the seller’s tape.
Correspondence History: This is the contact history between the lender or servicer and the borrower. If the loan is re-performing, this will detail the calls, emails and conversation that got the loan from non-performing to paying again. This is a useful document to check to see if the seller has good phone numbers and email addresses for the borrower. Also, you can get an idea how difficult it has been to get in touch with the borrower.
Payment History: Although basically unnecessary when purchasing non-performing loan s (there aren’t any payments to report), this is arguably the most important servicer document when reviewing a re-performing loan for purchase. A payment history of 6 month or 1 year of consistent payments results in what sellers call a “seasoned” loan. This means that the borrower has a proven track record of payments. You should never pay a re-performing loan price for an asset that hasn’t made at least 6 payments.
BPO: Broker’s Price Opinion, typically costs ~$100, is a third-party report prepared by a real estate agent who has driven by the property, taken photos and reviewed recently sold comps and other properties on the market.
PACER: Public Access to Court Electronic Records, this is the government database of court records where you will find all of the bankruptcy files for anyone in the country. Costs $0.10 per page (capped at $3) per document to review.
Skip Trace: Typically costs <$20, the skip trace is a comprehensive review of every bit of data available on the borrower. This includes (but is not limited to): property records, criminal record, occupation, licenses/permits, voter registration, vehicles, relatives and neighbors.
Title Report: Costs ~$100, is completed by a title researches who reviews the county public records to aggregate all of the recorded documents related to a specific property.
Credit Report: Typically costs <$10, contains all of the borrower’s “trade-lines”. Each trade-line is the type, balance and status of every debt the borrower has incurred.
As you gather and review all of the necessary reports, aggregate all of the information you have collected into a copy of the “tape” (Excel Spreadsheet or Google Sheet) provided by the seller. Compare the information you have independently researched against the data provided by the seller and used to prepare your LOI. If anything is significantly different than expected, use it as a point of leverage to renegotiate your final offer.
Once you have completed all of the research necessary to feel comfortable with the deal, reach back out to the seller with your findings and intention to move forward. If everything lines up with what was provided by the seller at the onset, it should be as straightforward as an email to the seller to prepare the contract.
If you are renegotiating the final price or removing asset(s) from the population for sale, make sure to clearly express the reasons you have for reducing the price or pulling a loan, then include the evidence for your reasons. This could mean attaching the BPO showing that the price is significantly less than represented or a title report evidencing that the lien is junior to other unexpected secured debts.
If you’re confused or need any clarification, feel free to leave a reply below with your question or comment. We will do our best to review your comment and reply!
I would be happy to get on a call, meet in person or answer an email if you need individual attention!
Robert Maxwell Hytha
FIXnotes, LLC
Robert Maxwell Hytha is the founder of FIXnotes and a partner with US Mortgage Resolution, one of the country’s premier mortgage note investment firms.
Beginning in 2011, Rob has analyzed, purchased, managed and liquidated thousands of mortgage notes. He personally operates his own portfolio of rental properties & mortgage notes.
Rob has found his passion in teaching investors a better way to invest in real estate.
Need help? Give us a call!
Posted To: Mortgage Rate WatchWhile it might not seem like the sort of thing mortgage rates should care about, the senate run-off election in Georgia was by far and away this week's most important event. This wasn't a surprise either. In fact, interest... The post Have We Seen The End of Record Low Rates? first appeared on FIXnotes. [...]
The estimates in the Bureau of Labor Statistics latest numbers were only marginally higher than the previous month, which may reflect more deliberate hiring and a preholiday slowdown. The post Nonbank mortgage jobs inch up to another series record first appeared on FIXnotes. [...]
Over a decade after passage of the ATR rule, many now see that regulating a borrower’s ability to repay while not restricting credit can be a balancing act. The post The mortgage industry should build ATR rule governance appeared first on HousingWire. The post The mortgage industry should build ATR rule governance first appeared on FIXnotes. [...]
After three consecutive weeks of increases, the number of loans in forbearance fell by 92,000 the first week of 2021, according to Black Knight. The post New year sees 2.74 million loans in forbearance appeared first on HousingWire. The post New year sees 2.74 million loans in forbearance first appeared on FIXnotes. [...]
In memos to their staffs, acting Comptroller of the Currency Brian Brooks and Consumer Financial Protection Bureau Director Kathy Kraninger denounced the violence perpetrated by President Trump's supporters and said both agencies remain in operation. The post CFPB, OCC leaders condemn Capitol riot first appeared on FIXnotes. [...]
Rocket Mortgage became the first lender to use eNotes when it closed a Ginnie Mae-backed loan in December. Now, it says the market is set to see widespread eClosings of Ginnie Mae loans by the end of this year. The post Rocket Mortgage performs first eNote close on Ginnie Mae mortgage appeared first on HousingWire. The post Rocket Mortgage performs first eNote close on Ginnie Mae mortgage first appeared on FIXnotes. [...]
Georgia's election results will impact struggling homeowners and rental property investors alike, political and housing-economics pundits predict. "With Democrats securing a majority in the Senate, a number of relief measures targeted at renters strug... The post What a Democratic Senate Could Mean for Property Owners first appeared on FIXnotes. [...]
For the second consecutive month, Fannie Mae’s Home Purchase Sentiment Index dropped six points in December to 74, its lowest since May 2020. The post Consumer confidence drops for second consecutive month appeared first on HousingWire. The post Consumer confidence drops for second consecutive month first appeared on FIXnotes. [...]
A taskforce established by the Consumer Financial Protection Bureau to examine the existing legal and regulatory environment facing consumers and financial services providers released its recommendations this week – a move that prompted conflicting reactions from the housing industry and consumer groups. The post Housing industry, consumer groups clash on CFPB taskforce results appeared first on HousingWire. The post Housing industry, consumer groups clash on CFPB taskforce results first appeared on FIXnotes. [...]
Less populous areas and counties located in the Midwest and South are more likely to have more affordable homebuying than renting options, according to a report from Attom Data Solutions. The post It’s cheaper to own a home than rent in 63% of markets first appeared on FIXnotes. [...]
Show your support with a $500 contribution!
Get a PDF download to print or read on all your devices.
Small typo under Collateral header – “Prior to making your* final offer..
Thanks Shenesia, corrected. I appreciate your attention to detail!