Navigating the Post COVID-19 Mortgage Note Space

May 27, 2020

What can mortgage note investors expect from this space in the wake of the coronavirus?

There is no question that this may seem like a challenging time for many investors. It is challenging in a good way. Yes, some may be dealing with cash flow under their expectations in the very short term, though there are great opportunities emerging too.

Access to Mortgage Notes

Knowledge of the mortgage note space has exploded since 2008. That has led to many more individuals jumping into this arena. It’s great to see so many more people benefiting from it.

However, as we saw after the initial explosion, banks, servicers and other parties with large portfolios of mortgage notes may have to tighten up even further on who they sell too.

We could still see a tale of two mindsets. Some bulk noteholders may not believe this is a long term issue and believe they will profit most by foreclosing on and profiting from reselling the assets. Others may move faster to shed pools of notes and debt investments this time.

However, the consensus is that these note sellers will be under even more scrutiny and obligation to vet who they sell to. They may be held responsible for bad acts and poor management of their buyers. Expect the best pools with the best discounts to be strictly available to bulk buyers with great reputations and track records. Deal sizes will also probably be larger.

Smaller investors will have to go through these intermediaries to acquire smaller packages and individual note investments.

Due Diligence

Be even more aware of the need to do your due diligence on sellers and notes. Banks don’t have a great reputation for operating ethically during these moments. Other unscrupulous players may be tempted to play dirty.

It’s All About the Workouts

The most successful investments and investors during this time will be those who are most experienced at profitable workouts. Learn and align with those who have proven they can do it.

Understand Who You Can & Can’t Help

This sector is all about creating win-win-win solutions. It’s a great time to show up and help borrowers. Some just won’t be helped though. Gain the wisdom to know the difference and act quickly to the benefit of your partners as well as the borrowers and their communities.

Clearing Out the Competition

The last few years have been a little frustrating for some experienced investors as they were outbid on acquisitions by newbies and those willing to gamble on over-paying for notes. Those players will quickly fold, which will really clear out the space. How they behave will also elevate or crush their brands and reputations, driving the business to fewer players. Expect more consolidation. Look for the opportunities to acquire assets from other failing note investors.

The Rise of Privately Originated Notes

As the mortgage origination market contracts and access to credit tightens, expect to see a new rise in seller financing and privately originated notes. Many serious players don’t want to go outside of the institutionally originated note space for various reasons. However, if you know how to value these assets well and do your due diligence, this can be a high growth sector.

Investment Opportunities

Find out more about investing in secured debt and real estate, go to NNG Capital Fund

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