Note Investment Opportunities: 2010 vs 2020
A lot has changed in the last decade when it comes to acquiring distressed notes. The problems that plagued the distressed note arena in the aftermath of the last financial recession of 2008 have now been cleaned up – tempting those who flirted with the industry in years gone by to take another serious look at note investment opportunities.
But what were the issues? How have they been rectified to make this market attractive once again?
Ghost Tapes Used to Plague the Industry
Perhaps the biggest issue a decade ago was ghost tapes. Distressed notes are sold in pools, therefore always a good idea to look at the loan-level data (tape) to ensure you are getting a good deal in exchange for your investment.
However, in the late 2000s and early 2010s there were issues with batches of distressed notes being shopped around investors with incorrect tape data – so-called “ghost” tapes. Without genuine data, investors were left unable to accurately track the lifecycle of the loan, killing a huge number of potential deals.
So what were the underlying causes of ghost tapes back in 2010?
Too Many Hands in The Same Pie
Amidst the backwater of aftershocks emanating from the 2008 mortgage crisis, there were clearly a lot of distressed notes to go around, particularly after the moratorium of foreclosures in 2010. Tapes held by institutions were passed out to several middle-men looking for quick income from the commission paid on successful note sales.
However, one tape could be passed through six or seven intermediaries before being presented to the end investor. In several instances, intermediaries were selling pools that did not belong to them, or were no longer available. It wasn’t unusual for investors to be speaking to someone more than 7 times removed from the owner of the distressed notes.
Investors had to spend such an extraordinary amount of time tracking down genuine deals that they decided to leave note investment opportunities to those who had the time to deal with all of the obstacles to due diligence. Speak to investors involved in the industry 10 years ago and they’ll tell you how chaotic it was, and how repeated killed deals left a bitter taste in their mouth.
However, the industry has changed for the better.
Better Reporting Smartens Up the Industry
Luckily for today’s investors, Revolve Capital Group has measures in place to ensure each individual note has an easily traceable history. The note investment opportunities today are similar to opportunities available to an individual purchasing a second hand car.
Think about buying a used car today. How would you do the due diligence? Naturally you would turn to a provider such as CarFax to run a check on any reports of damage, outstanding finance payments, or issues surrounding the car title (e.g. car title loan). Today, you can do the same for distressed mortgages.
Investors can simply look up the chain of title, tracking where changes of assignment have been made from lender to lender. You can trace how many times the note has changed hands and accurately assess its value. These changes are part of the reason why real estate investors are coming back around to the idea of picking up distressed real estate notes, thanks to the many advantages over traditional investments.
Where Revolve Capital Group Differs
The clue is in the title. We go directly to the source. No middlemen passing off the notes to even more middlemen. We only buy bank-direct assets to sell to our investors. Which means – for example – instead of talking to a company seven times removed from the bank, our investments have been acquired directly from the bank which the mortgage was acquired.
We operate under an ethos of utter transparency. You can use these records to verify the history of the note, and use due diligence documentation to make sure you are getting great value for your investment.