Proficient Note Buyers
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March 09, 2009
Define "Buyer's Market"
I just got back from having coffee with a good friend of mine. He lives roughly four hours away and stopped by on his way through town. He was on his way back home from a large antique show in Portland, OR.

"It's a horrible time to be a seller of ANYTHING", he told me. "Nobody's buying." He should know. He recently had to shut down his antique store and is now an auctioneer.

I can understand his frustration. Several investors in the note business have stopped buying as well. Maybe it's due to a failed business model or unacceptable delinquency and default levels, but the federal government isn't making it any easier for them, either.

The U.S. House of Representatives passed a bill that gives bankruptcy judges the power to modify mortgage terms. That should concern you as a note holder. How does it feel knowing that a judge can tell you your borrowers don't have to pay you what they promised they would? How happy does it make you to know that a third party can intervene and invalidate your contract with your purchaser?

Companies like ours who buy notes are watching this very carefully. How much risk is too much risk if a judge decides a borrower now only owes $60,000 when the note is for $100,000? Yeah, it's scary. Now more than ever, the borrowers' credit, payment history, and job situation/income will need to be bulletproof in order for an investor to get comfortable with a note.

I suspect partial purchases will become much more prevalent if the investor is concerned about governmental intervention on their ability to collect on the note. Limiting the investor's exposure will be paramount. Of course, the geniuses in Washington D.C. don't think about these kinds of things when they swoop in to save the most irresponsible among us. Rather than spur commerce and the trading of paper on the secondary market, this bill throws up yet another hurdle for both buyers and sellers of real estate notes.

Once again, the question: How can it be a buyer's market if nobody's buying?



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