About an hour ago I made a post that has caused the note selling world to virtually turn upside down.
(You can skip down and read the post and return if you want to get up to speed)
Because of the deluge of calls, emails, tweets and CNN reporters snooping around, I must address the facts of this post in question.
The issue revolves around a note seller who accuses the note buying industry of trying to "steal" his 3% interest rate note. He said he is sick of all the "lowball" quotes to buy his note...
Let's look at the simple facts of what we know:
All the note seller tells us is that he has a 30 year note with an interest rate of 3%.
He mentions that he needed a quick sale of his property and that is why the low interest rate.
No other details...
Did you know? What's the value of a $100,000 balance note at 3% interest, payable over 30 years?
I will fire up my note buying "fancy pants" software to answer this question...
The monthly payment amount would be $421.60.
If an investor wanted to earn 10% yield on his money by buying this 3% note he would have to buy the note at $48,041.
Holy Schmoly!
That's less than 1/2 of the note balance!
Welcome to basic math people.
If you give someone a 30 year 3% mortgage note, than you are going to get smacked hard if you try to sell that 3% note to someone else later on.
You can see why Mr. crybaby note seller thinks that everyone is trying to "steal" his note.
He never realized that
he was the person responsible for the discount being so big. It was
his decision to allow such an attractive note to his property buyer.
If he knew that his 3% note would only be worth 40-50 cents on the dollar, he would have probably negotiated the seller financing a bit differently...
CNN reporters can go home now.
False alarm.
