Indicative Bid

An indicative bid is a preliminary, non-binding offer on a mortgage note or loan pool submitted before the buyer has completed comprehensive due diligence. It communicates what the buyer is willing to pay based on the information currently available — typically the seller's data tape and free public research — with the explicit understanding that the final price may adjust once vendor reports, title searches, and collateral file reviews are complete.

Why Indicative Bids Exist

The secondary mortgage note market operates without a centralized exchange. Sellers distribute data tapes to multiple potential buyers, and those buyers need a way to signal both interest and pricing discipline without committing to a binding purchase before they have verified the underlying data. The indicative bid fills this role. It tells the seller: "Based on what I can see, here is my price range — let me into exclusive due diligence and I will confirm or adjust."

Without the indicative bid step, the acquisition process would stall. Sellers would not grant exclusive due diligence periods to buyers who had not demonstrated serious intent, and buyers would waste money ordering BPOs, credit reports, and title searches on loans they might never win.

What Drives an Indicative Bid

The indicative bid is the output of a pre-bid screening process — often called the pre-bid waterfall — that uses free, publicly available data to evaluate each loan's viability and risk profile before spending money on vendor reports.

For non-performing second liens, indicative bids on standard assets typically fall between 30% and 50% of UPB. Strong assets with high equity, a current senior lien, and an owner-occupied property may justify 50% to 60% or more. Weak or uncertain assets may fall below 30%.

Indicative Bid vs. Binding Offer

The indicative bid is explicitly non-binding. It becomes a binding commitment only after the buyer completes due diligence and executes a loan purchase sale agreement (LPSA). The typical progression is:

1. Seller distributes the tape to potential buyers
2. Buyer runs pre-bid research using the waterfall process
3. Buyer submits an indicative bid — either as a letter of intent (LOI) or an informal per-loan pricing spreadsheet
4. Seller grants exclusive due diligence to the buyer whose bid and reputation are strongest
5. Buyer conducts full due diligence — ordering title, BPO, credit, and reviewing collateral files
6. Buyer confirms, adjusts, or removes loans based on findings
7. Parties execute the LPSA and fund the trade

During step 6, it is normal for some loans to drop out of the pool or for prices to adjust downward. Due diligence may reveal title defects, statute of limitations exposure, missing documentation, or property values that differ from pre-bid estimates. Experienced sellers expect this and evaluate buyers partly on how transparently they communicate adjustments.

Best Practices for Submitting Indicative Bids

Price every loan individually. Even on pool purchases, assign a per-loan bid. This gives you the ability to remove or reprice specific assets during due diligence without renegotiating the entire trade.

Base bids on UPB, not arrears. Treat accumulated arrears, late fees, and accrued interest as potential upside rather than as a pricing basis. Servicer restrictions on arrears collection and increasing state-level enforcement make arrears an unreliable component of value.

Respond quickly. Sellers often distribute tapes to dozens of buyers simultaneously. A buyer who returns a well-organized indicative bid within days — rather than weeks — demonstrates the seriousness and operational capacity that sellers prioritize.

Share your reasoning. When you submit the bid, include a brief summary of your pricing methodology. Sellers who understand how you arrived at your numbers are more likely to negotiate constructively and to send you future deal flow.

Build in a margin of safety. The indicative bid is based on incomplete information by definition. Price conservatively enough that due diligence findings improve the economics rather than erode them. A bid that must be cut significantly during diligence damages your credibility with the seller.