Banks are working hard to offload billions of dollars in nonperforming mortgage loans. What does this say about the foreclosure crisis? Could this be the best source of deals for real estate investors? More importantly, how can investors find them and take advantage of them?
Note investing has become a booming business, and from recent headlines there are many more notes out there for the buying than most realize. So what does this all mean for the average real estate investor?
Billions in Mortgages Go Up for Sale
Some real estate investors have recently complained of a lack of access to bargains and deals. Others, of course, have been making their own fortunes happen. The following figures show there are still more potential investment opportunities out there than anyone can handle. According to a new Bloomberg report:
- JP Morgan Chase is offering $390 million in non-performing loans
- HSBCA is selling $1 billion in delinquent loans
- Goldman Sachs is auctioning $700 million in loans for Regions Bank
- The government and FHA are also in on this trend
- An industry CEO at a Vegas conference predicts 500,000 NPLs to sell in 2014
A Windfall of Opportunity or Something Else?
Some real estate investors might wonder why all of this inventory is being shed. There are actually multiple reasons, including:
- Banks desiring liquidity
- Non-performing loans are expensive to maintain and foreclosure on
- Need for cash to originate new and more profitable home loans
- Banks deciding past due borrowers are not the customers they want to have
- A need to remain competitive in the face of crowdfunding for real estate
- Regulators placing tough capital reserve requirements on those holding these loans
- Realizing many borrowers just aren’t ever going to pay, and cutting losses
All of this isn’t necessarily a bad thing, nor do they make these loans bad investments. For starters; if they are successful in selling, it could mean banks becoming more aggressive and pushing out more new loans. Those buying these NPLs could find this as one of the best sources of real estate investments with less competition and big discounts.
It’s not just big national banks holding this paper or selling it either. There are hundreds, and thousands of others banks, credit unions and money managers around the U.S. with similar portfolios.
So how can real estate investors find and buy these notes? Why should they? What do they need to watch out for?
Getting Started in Mortgage Notes
Get the edge by looking for better data on banks:
- Who is holding this paper?
- Who has the type of notes you want?
- Who can sell it?
- Who is actively selling it?
- Discover direct contact info for decision makers
Why Notes?
- For cash flow
- Taking down properties
- Flipping mortgage notes
- Flipping houses
- Helping others by modifying their loans as the new lender
However, there is a “but.” Make sure you know how to value them. Remember, NPLs are on sale for a reason. Don’t neglect due diligence. Recognize how value can change in the future on performance, demand and rate fluctuations.
