Pricing Distressed Notes | Finding the Total Payoff for the Loan
“Hey everyone, Chaz Guinn with Revolve Capital…
We come into situations and pricing discussions with you as our audience every single day. We appreciate it because you guys are trying to find value and an opportunity and arbitrage potentially in this market.
Especially as we navigate ourselves through a global pandemic, we are starting to see that this market… this distressed arena, has been insulated from a lot of the headwinds that many different industries have ran into. That is why you know 12 years into this business, it is such a reward to really see the different market changes that we’ve seen since 2008. You know you fast forward here in 2020 to still see a real pullback and a recession in the market that industries like this can still thrive. Value and opportunity can still be found. This is where we really enjoy getting to meet a lot of people that are coming in and getting signed up with us, coming from many different backgrounds.
One of the pricing discussions we ran into especially if you look back into the 2010, ’11, ’12 days was home values were still losing a lot of their traction. For example, a hundred-thousand dollar house in 2008 had slid all the way back maybe to $75k or $80k in 2011 and 2012. If you fast forward to 2020, you’re starting to see that same example. The market value of that house has crept back up towards $100k to $105k Sure, the pullback from the early 2000 decades, that value has been regained here in 2020.
Let’s just use some pricing discussions that we’ve ran into with many of you. $100,000 house, $90,000 mortgage balance, Borrowers took out the mortgage in 2012. They made consistent payments on that mortgage for five years. Let’s just say the $90,000 mortgage balance dropped to $75,000 for round measure purposes, so $75,000 mortgage balance, $100,000 house value. In 2017-18, let’s just say a divorce a hardship, some sort of job loss occurred and the borrower stopped making the monthly payment. The ticker, or the contract amount, for that unpaid balance will stop there and the lender and servicer begin to make advances on the loan on behalf of the homeowner. That could be taxes, fees, interests, corporate advances, insurance premiums things of that nature that begin to tack on, on the side. If you have a $75,000 balance and a sub balance that’s starting to accrue as payments are missed and not made that is a total collectible balance that you as the investor can discuss with that homeowner in the event the homeowner wants to stay-and-pay or if you cannot get a hold of them and you want to foreclose that amount would be used at the auction steps.
Many of you have come into a question where you say, how can I price the loan if it looks like it has equity but it’s in foreclosure. If the $75,000 balance is the contractual amount that the borrower is no longer making and there’s a fee and a sub balance that’s beginning to accrue when that homeowner is either found and you start the communication again that collectible balance on top of the fully collectible balance is what we’re calling the total payoff for the loan. This is standard. We ask that you verify this information. But, if your loan or your deal appears to be a $100,000 house in an equitable based position, make sure you’re looking at that sub balance that’s been accruing, that allows you as the investor to approach a homeowner and have a total payoff balance, that allows you to recoup more of your funds.
We are going to be bringing you these types of real life concepts as we begin to negotiate, and really ramp up our business here in Q3. We’ll talk to you guys all very soon.”