At Keyhole Financial, a big part of our business is brokering loans. Sellers come to us with their loans and ask that we “market” these loans to our vast list of clients. The very first thing I ask a seller is, “what are your expectations with this sale?”
As you might imagine, most sellers (including myself) believe that they have a very valuable list and they expect high returns on their brokered loans. After I try to bring them down to reality, I ask them to give me a “bare, bare, bare” minimum of what they’d take for each loan and/or for the entire pool of loans. My goal is to under-promise and over-achieve.
There’s a lot that goes into selling loans. On the data side, I spend a significant amount of time cleaning and organizing the list so that it’s in a proper order that makes it easier for investors to read. I then make sure that there are updated credit reports and the collateral materials are all there.
On the database side, I want to make sure that the list I’m marketing goes to the proper investors based on their specific demographics.
What I find most of the time is that the market never lies. For example, if I send out five loans for bids and a major percentage of the bids come back with similar pricing, then this is what market is telling us these loans are worth. There are always anomalies and most of the time those extremely high bids belong to someone new in the industry.
After all the bids are in, I review them with the loan seller. With some loan offers, sellers can sometimes become defensive and try to justify why the offers should be higher. In the end, it comes down to either two choices; either accept the highest bid or take back the loan and try to work it out. If you’re able to work out the loans, you can either keep them as an annuity or, try to sell them now with a pay history behind them.
In a previous blog, I mentioned the dos and don’ts of placing offers on pool of loans. Following are some of the nuggets from that blog.
Dos and Don’ts of Placing Offers on Brokered Loans
- Always save the original spreadsheet. Name it “Original” and save it in a folder with the seller’s name.
- Make a copy of the “Original” file and name it with your company’s name somewhere in the filename. This makes it easier for the seller to know who the list is from.
- Go through the spreadsheet and eliminate any columns that don’t make sense for your analyzing.
- Start putting the columns in logical order. Place all the borrower’s info in one section, the second mortgage info in another section, etc.
- Once that’s done you can start analyzing the data and deciding which loans you want and at what price.
- Select a column in the spreadsheet to place your bids. It’s a good idea to place the bids at the beginning of the spreadsheet.
- You should also have one column for the dollar amount of your bid and another column for the price for the percentage your dollar amount represents.
- Always ask the seller to confirm they received your email.
- You should also always follow up with the seller if you haven’t heard from them to see how your offers did.
In conclusion, I believe a list is only as good as it’s been worked. If you purchased a loan with the intent of just flipping it, you should expect a minimal return on your investment. If you buy a loan and put in the time and effort to try to get it performing and succeed, you now have a choice of holding onto it or trying to sell it.
Either way, remember, the market will never lie to you.