Bid-Ask Spread

Bid-ask spread is the difference between the price a buyer is willing to pay (the bid) and the price a seller is willing to accept (the ask) for a mortgage note or loan pool. A narrow spread indicates strong pricing consensus and a liquid market; a wide spread signals disagreement about asset value, often driven by differing assumptions about collateral condition, borrower collectability, or resolution timeline.

In the secondary note market, bid-ask spreads are typically expressed as a percentage of unpaid principal balance (UPB). A seller listing a non-performing first lien at 65% of UPB while a buyer bids 50% of UPB represents a 15-point spread. Wide spreads are common on non-performing loans where the resolution outcome is uncertain, and narrower spreads tend to appear on performing loans with predictable cash flows. When spreads remain too wide, trades stall — neither party moves, and the loan sits unsold until market conditions, new data, or seller motivation close the gap.