The large institutions are selling billions of dollars worth of assets each quarter. For example, Fannie Mae regularly sells large pools of notes worth billions of dollars.
There are many reasons banks sell performing loans. When a note becomes non-performing, the bank must hold large cash reserves to service the note. Banks often sell their performing loans to generate the reserves quickly to service their non-performing loans. Another reason is that most of the interest on a loan is paid on the front-end, therefore the front-end is the most profitable for a lender. That is why a lender can sell a performing loan before it is fully paid off and still make a profit. By selling a performing loan, a bank can generate cash to make loans without waiting for more deposits from customers.
We use a broad set of criteria to evaluate notes. Our underwriting criteria include the neighborhood of the asset, the borrowers pay history, the price of the note, the price of the home, and many other elements that determine the value of the note. Prominent Funding uses a combination of data and proprietary heuristics to determine the best balance of profitability and risk.
Prominent Funding is investor-focused. As a family-oriented firm, we understand the importance of a hassle-free, pleasant experience. You can sleep well at night knowing that Prominent Funding is with you every step of the way, keeping an eye on your assets and doing everything we can to maximize performance and profitability. Prominent Funding has the expertise, team, and systems necessary to make your note investment a successful one.
Some notes have large interest rates, is it because the borrowers have bad credit, or do the properties have problems?
Interest rates are one way a bank can make money when underwriting a loan. Banks are limited on the amount of fees they can charge. When banks loan on small balance real estate they cannot make sufficient money on fees alone. They increase the interest rate to enable them to make sufficient money.
I understand why banks dont want to make small balance loans, but if one has already been made why dont they just keep it?
The most profitable section of any loan is the first few years. Once the bank takes those payments, they have made quite a bit of profit and can afford to sell the remaining term at a discount, freeing up reserve space for new lending. See other reasons banks sell loans above.
Selling partials requires a contract to be signed, security agreement recorded at the county, and a loan servicer knowledgeable in managing partial amortization schedules. We have all this ready.
In the case of borrower default, Prominent Funding is financially incentivized to handle all borrower negotiations and legal actions on your behalf. All our notes are secured by real estate. This means that if the borrower defaults and, after all reasonable attempts have been made to modify the loan the borrower still does not pay, we can foreclose on the borrower and sell the home. We protect our investments by purchasing notes with large equity and low investment-to-value. We have the systems and partnerships in place to execute these transactions efficiently and cost-effectively.
When you purchase a partial note, you realize your full return in a shorter amount of time, making it a more liquid investment than a whole-term note.
The largest advantage comes from the fact that Prominent Funding and our resources are financially motivated to back you up should anything go wrong with the note.
Investors can purchase a whole note or a partial note from a note seller. A whole note purchase is when the investor purchases all of the remaining payments on the note. A partial note purchase is when the investor purchases only a portion of the remaining note payments. For example, if a note has 20 years worth of payments left, a partial purchase may include only the next ten years of payments. The number of payments purchased affects the resulting yield on the investment. After the partial term ends, the payments revert to the original note seller.
Are there any regulatory requirements or conditions to selling partials, or re-selling notes for a profit?
Prominent Funding works with attorneys to ensure we are wholly compliant. We make every effort to fully, completely, and with total transparency disclose all issues to our investors and buyers.
Yes, savvy investors can do this. However, we have been studying and working in this field for some time and have extensive training, experience, and the right industry relationships and partnerships.
The number of payments is selected by the partial seller to allow the purchaser of the partial to obtain a negotiated interest rate. Increasing the number of payments increases the interest rate and decreasing the number of payments decreases the interest rate.
Partials can generate rates of return between 6% – 8%.