The good news from the lender ’ s point of view is that , due to the purchase of these loans at steep discounts , rate of returns in excess of 15 % are not uncommon .
One additional factor that may help in modifying the NPL ’ s notes is the fact that , according to Bank of America ’ s internal data , rents continue to rise . July 2022 year over year showed an increase in rents of 7.4 %. Most people want to keep their home . If the lender can give them advantages to saving it , most homeowners will jump at the chance , especially when their alternative is to be thrown into a rising rent market . A question the lender has to contemplate is whether the strategy of keeping a homeowner in their home makes economic sense [ ignoring the moral issue of eviction ]. In some cases , evicting a homeowner and immediately selling the house may make sense . In some cases , the lender may choose to invest money in rehabbing the property in hopes of additional gain , but there is uncertainty with this strategy ; the time it takes to rehab , the expense , and the value of the house after rehab and time
to sell [ with expenses associated with the sale ]. When a homeowner is going to get foreclosed on , there are avenues that can be taken to delay the inevitable , including filing bankruptcy . Due to court budgets , this delay may be prolonged more than the lender originally anticipated , especially in judicialonly states . The time and expense for entering into foreclosure for the lender may not be worth the anticipated profit ; however , the strategy of keeping the homeowner in place and working out a new deal can produce immediate cash flow , as the borrower will start making payments right away . In addition , the costs to modify a note are substantially less than what foreclosure costs would normally be .
The good news from the lender ’ s point of view is that , due to the purchase of these loans at steep discounts , rates of returns in excess of 15 % are not uncommon . After the note is modified , the lender has the option to flip the note to a note buyer
as a performing note [ which will command a higher price than an NPL ], or the lender may choose to keep the note for the cash flow . In the case of choosing to sell the note , the lender may be wise in waiting to experience six months of performance by the borrower , as most note holders desire to see notes that have at least six months ' seasoning ; otherwise , they may discount the note for uncertainty reasons [ lack of history ] more than the lender desires .
MEET EDWARD BROWN
The good news from the lender ’ s point of view is that , due to the purchase of these loans at steep discounts , rate of returns in excess of 15 % are not uncommon .
Edward Brown currently hosts two radio shows , The Best of Investing and Sports Econ 101 . He is also in the Investor Relations department for Pacific Private Money , a private real estate lending company . Edward has published many articles in various financial magazines as well as been an expert on CNN , in addition to appearing as an expert witness and consultant in cases involving investments and analysis of financial statements and tax returns
Edward Brown , Host The Best of Investing on KDOW AM1220 on Saturdays at noon .
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