Note buyer

How note buyers work

A note buyer purchases a loan after it has closed. The seller endorses the promissory note and assigns the mortgage or deed of trust to the buyer, who then receives the borrower’s future payments. Note buyers range from individuals buying single loans to funds and institutions buying pools.

Buyers price a loan from its loan tape and file: note rate, remaining term, loan-to-value, borrower experience, property type, payment history and the strength of the documents. Depending on how the note rate compares with the yield the buyer wants, the price can be at par, a premium or a discount to the unpaid balance. Some buyers want servicing transferred to them (servicing released); others let the seller keep servicing (servicing retained).

Note buyers are different from capital partners who fund a loan at closing. A note buyer takes a loan that the lender has already funded with its own or borrowed money. On Lender Capital, capital partners can do either: fund a new whole loan at closing or buy a whole, performing loan the lender has already funded.

Why it matters to a private lender

Selling notes recycles capital so the lender can make the next loan. The cost is time: until the sale, the loan sits on the lender’s balance sheet or warehouse line, and price is only known once a buyer bids. Clean documents and a complete tape make loans easier to sell.

Example

Hypothetical. A lender holds a $400,000 bridge loan at 11%. A buyer seeking 11% pays par; a buyer seeking 12% bids below par to make up the difference.

See note buyers for private lenders and how loan buyers price bridge and DSCR loans.