February 2016

the loan and is responsible for the payments.

assets, and then scouring tapes,” she said, referring to spreadsheets containing the record-level information for the non-performing loans. Thompson recommends that new NPL investors start with calling a local bank to find potential loans for sale. “That’s what I do, you just call and you ask ‘do you guys have anything you want to move?’”, he said. “And just make that part of your work week. I’m going to call 10 banks this week.”

That type of flexibility in negotiating a creative outcome for a delinquent loan would typically not be available through a big bank servicer, according Woods, Thompson’s co-host on the NoteMBA podcast. Woods provided another example of the flexibility that mom- and-pop investors can offer to borrowers: forgiving payments. He said he was recently able to do this for a borrower whose loan he owns in Ohio. “At Christmas we forgave three months of their payments because they had been making all their payments,” he said, noting that because he purchased the loan at such a deep discount he had already broke even on the investment. “When borrowers … reach out to you … you have the ability to make this a win-win. You don’t have to be an aggressive prick.” But Woods and other note buyers emphasized that not every note purchase ends in a win. “The truth is there are deals you are not going to make money on,” said Woods, adding that there are three primary items that need to be researched as part of an investor’s due diligence before buying a non-performing loan: property value, property title, and property taxes. NPL Buying Pitfalls

Be Like Water

Thompson said he rarely knows for sure his exit strategy when buying an NPL; instead he stays open tomultiple exit strategies depending on the numbers and the response of the borrower.

“Be like water,” he said, referring to the Bruce Lee axiom.

Thompson estimated that out of every 10 NPLs he purchases, three or four are foreclosures, two or three are loan modifications, one is a short sale, one is a deed-in-lieu of foreclosure, and one or two are “weird deals.” “There tends to be that wild one in the bunch,” he said, providing an example of a recent loan he purchased where the borrower was an elderly man who couldn’t afford even modified mortgage payments, but who had a son living with him who could afford a modified mortgage. So Thompson plans to agree to a loan assumption where the son assumes

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