Oct 182013


By: Eddie Speed  Notes Double Class

The Note Business is now the hottest topic in all of real estate and for good reason. The “paper” side of the real estate industry is seeing amazing growth:

  • The inventory of Non-performing and under performing notes are at all time highs
  • Lenders are realizing that it is more beneficial for them to sell the note rather than go through the time and cost of a foreclosure and property resale.
  • Government entities Fannie Mae, Freddie Mac and now HUD and FHA have switched their focus from foreclosures and REO properties to selling the notes because it helps the consumer and housing market much more efficiently

Evidence of a market shift from REO and foreclosure sales to note sales are popping up everywhere. For example, Michael Bull, host of the popular “Commercial Real Estate Radio Show” recently interviewed Charlie Brake of Hartman Simons (Atlanta based Commercial Real Estate Law Firm), who said this:

During his appearance, Brake noted that when faced with non-performing loans, lenders often prefer to sell the note rather than go through the foreclosure process for a variety of practical and financial reasons.

Selling a note often is a quicker process than foreclosure for a lender, and it also enables a lender to avoid paying insurance and real estate taxes on a foreclosed property, he said. Furthermore, “by selling the notes, [the lenders] don’t get in the chain of title, so they don’t have to worry about any environmental issues or any other sort of issues that might arise from being in the chain of title.”

In a press conference last month, Carol Galante, FHA’s acting commissioner, announced the launch of the Distressed Asset Stabilization Program. This program scheduled to launch in September will allow lenders to place some of their non-performing notes into mortgage pools, which will be sold to investors on the open market. In addition to saying that  “this program will be cost-effective for the FHA, it will be better for communities as well”, she also said this:

“Currently, FHA’s inventory of REO properties available for sale is at its lowest level since FY 2009. At the same time, the inventory of seriously delinquent loans is near an all time high.

With many neighborhoods still fighting to recover from the housing crisis, going upstream will allow us to help more borrowers before they go through foreclosure and their homes ever come into the REO portfolio.” 

Clearly FHA will be selling more notes than REO properties. Shaun Donovan, HUD Secretary, who said the following at the same press conference, drove this same point home:

“With this program, we will increase by as much as ten times the number of loans available for purchase while making it easier for borrowers to avoid foreclosure. Finding ways to bring these loans out of default not only helps the borrower, but helps the entire neighborhood avoid the disinvestment and decline in value that accompanies a distressed property.”

Can you really afford not to be investing in notes? Do some research and I am sure that you will come to the same conclusion that thousands of real estate investors have come to: The Note Business needs to be a part of your business.

NoteSchool has, hands-down, the most qualified faculty, the most experience, and our students have exceptional results.

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