Note Valuation

What Determines a Note’s Value?

Investors consider many things when purchasing a Mortgage Note because there are risks involved.  We look at several main factors to determine the exact pay price of the note:

  • Buyer/Payer
  • Collateral (Property or Asset)
  • Down Payment
  • Terms of the Note, Interest rate
  • Performance, Seasoning
  • Documentation

Buyer: The primary source of repayment for your note. The borrower’s credit rating and capacity to repay weigh heavily on the amount of the discount applied to your note.

Property/Collateral: The type, location and condition of the property are all considered when determining the discount.

Down payment: This represents the amount of cash or equity the buyer has in the transaction. A larger down payment reduces the risk that the buyer will walk away from their investment. Therefore, a lower down payment will result in a higher discount.

Interest rate/Terms: The higher the better. Low rate = bigger discount.

Seasoning/Performance: Performance is the regular, timely PI payments, as well as up-to-date tax and insurance payments. The better the note has performed over its lifetime, the more value the note will retain. If there is a history of non-regular payments, payment gaps, no payments, lapsed tax and insurance, the note is still marketable, but it will have lost some value. There are all flavors of notes, from stellar to less-than-stellar, and each one is considered individually when a purchase is considered.

Documentation: Original note and disclosures, the borrower application credit report, BPO, title, etc.

Resale Potential:  While owner financed mortgages provide the solution to home sales, many sellers are reluctant to hold mortgage paper for lengthy periods of time. The solution?  Seller Financed Notes structured by Evergreen Note are extremely attractive to the secondary market, selling for 20-30% more than traditional seller financed notes.