Proficient Note Buyers
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July 28, 2008
Due Diligence
Due diligence is defined by www.investorwords.com as "The process of investigation, performed by investors, into the details of a potential investment, such as an examination of operations and management and the verification of material facts." In other words, due diligence is a fact-finding mission to ensure the safety of an investment.

When due diligence is done correctly, many (if not all) of the investments will perform exactly as they were intended to. When due diligence is treated as a formality, or worse as a barrier to buying a deal, it becomes what I call doo-doo diligence. Such was the case with the subprime market for the past several years.

The residential securitization market was booming. More product meant more dollars to the big boys on Wall Street. As their lust for more volume peaked, originators were throwing anything and everything at them, full well knowing, good loans or bad, Wall Street would find a way to package them up and sell them off to unsuspecting investors worldwide.

That party is OVER. The doo doo diligence performed over the last several years has come back to bite everyone in the backside. They say hindsight is 20/20, but is there anyone who didn't see it coming?

When presented with an opportunity to purchase a note, we ask a lot of questions. Probably more than most other buyers would ask. From the moment we have a prospective seller on the phone, our due diligence process starts. It's always easier to let the seller tell us up front if there are "warts" on their note. 99% of the time our due diligence is going to root out any problems with the file - if we know about them from the start, not only can we begin to find a way to work with the "warts", but the seller's honesty builds trust, and you can't put a price on that.

"Trust but verify." One of Ronald Reagan's favorite quotes and what we build our due diligence process around. How can we help YOU?


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