How do you sell a privately held mortgage?
This is a great question and I am truly happy I can answer this, the reason I say that is because with home loans and commercial loans for that matter are becoming more difficult to obtain every day. Subprime is gone and so are real jumbo loans, so what are people and companies that need to sell to do???
That is right create a note and sell it! Did you know in 2006 1 out of every 400 transactions nationwide was a seller financed deal. In 2009 that total dropped to 1 in 50! Some predict that by the end of 2010 that number could be as low as 1 in 10 or 10% of all transactions in the country! This means a tremendous opportunity for growth in this market segment.
There are many ways you can sell a privately held mortgage. There really is no right or wrong answer just options that you have in the manner in which you sell the mortgage or also commonly known as a "note".
The note can be sold to completely or it can be sold partially depending on the investor. A complete note sale is just as it sounds, the sale of the entire note or mortgage.
A note may also be sold as a "partial" sale. This is if you do not really want to sell the note or if you are in need of a lump sum to take care of something else in your life. This could be a vacation, taxes, a new car, a major operation or whatever it is you need the money for.
The way it works on a partial sale is that you actually are selling payments or "cash flow" for cash. An example would be half for a half, half of the mortgage note today for half the payments coming in. After the investor receives the agreed upon number of payments you could do it again with the rest of the money, this will get you the highest return on your money if you are selling. The highest return on the money is to actually keep the note. Have you ever looked at the truth in lending form and seen how much is actually repaid from what was originally borrowed.
The way most are familiar with is to sell the note outright. There are many factors involved in selling a note either partially or entirely. You need to have all your closing paperwork, the deed of trust, Hud 1, the note itself and there are a list of other items needed to complete a sale.
The fact is that most existing note are not saleable anyway, saleable means put together correctly so they could be sold to an investor. There are many reasons for this, a few examples would be the note rate is to low, I.E.,5% interest rate is ok if you are a bank, but you are not a bank, so if your rate is this low you can still sell the note but you will get much less for it, another example is there is no "protective equity" there was not enough of a down payment when the note was created, maybe the buyer only put 5% down, again this is fine for the fanniemae's of the world but not in the seller finance world. Another is non payment from the note or mortgage payor.
When you sell your note you will sell at a discount, the reason is due to the time value of money. The cash the seller gets is certain and in their hands at the end of the transaction, the purchaser of the note is also buying risk. If they do not get paid then the return they are seeking does not happen as planned. Selling your note partially will hlp you to get the most for your note but if you do need to sell the entire note then you want to make sure you create the note properly so you minimize the amount the note gets discounted.
There are no guarantees but there are ways to reduce investor risk and obtain a higher offer for the note. An example would be to "qualify" the buyer by obtaining an application package similar to what lender's obtain prior to approving a loan, you would be wise to do some basic "due dillegence" yourself by collecting pay stubs, copies of the past 2 years taxes, the past 2 months bank statements, last retirement statement and have them sign an agreement stating that if you decide to sell they must provide updated items for the investor at the time.
I could go on and on but the thing I feel I also must address is that yes there are investors out there both individuals and institutions that buy mortgages, in all parts of the country, a good note broker should save you their fee by being able to find a better price for you mortgage then you can, however there is a true shortage of these brokers accross the country for the volume that is coming this year!!
Since there is so much to cover here, If you have more questions about this feel free to contact me or any local note broker.