Primary marketInvestor Report: Online Auction Sites
If you"re looking to buy a mortgage note as an investor, or if you want to sell, two new online auction sites could be extremely helpful.
LoanMarket.net and BigBidder.com both have gone live in recent weeks, and they offer competitive listing opportunities for note sellers and potential bidders on hundreds of individual home loan notes up for auction right now.
Realty Times spoke with the founder and CEO of LoanMarket, Jeff Freud last week. The idea behind the site, he said, is to create a "neutral and transparent marketplace" allowing buyers to examine notes and the properties securing them in detail, while also giving sellers "the best shot at getting the best price" on what they"re offering.
Notes up for auction include first and second liens on single family homes, performing and non-performing payment histories, and widely varying interest rates and terms.
Some of the listings come with independent due-diligence reports on the notes and underlying real estate from Clayton Holdings, a national loan analytics firm.
Buyers who don"t want to handle monthly collections from home owners can also contract out those duties to FCI Lender Services, a specialized loan administrator.
LoanMarket takes its own photos of every listing. Freud says, "We owe it to (potential bidders) to show them the property" independent of sellers" photos. The site also pulls automated valuations on each house serving as collateral for a loan.
The company only charges sellers when transactions go to closing -- and then the auction fee is 95 basis points -- just under one percent of the deal. Currently there is no listing fee up front.
Many of the buyers so far, according to Freud, are "Mom and Pop" individual investors looking to diversify their portfolios, or with self-directed IRAs looking to boost their yields. Investing in notes can be complex, and buyers need to review every term and feature in the mortgage documents available on the site -- and ideally visit the underlying property itself and check it out before bidding.
BigBidder.com"s auction concept is similar to LoanMarket"s, but the site appears to predominantly list non-performing first and second mortgages, which tends to narrow its buyer base to investors who are prepared to deal with borrowers who are not paying on their loans.
The non-performing aspect also sharply lowers asking and bid prices.
Then again, it also raises potential returns to investors who know what they"re doing -- especially if they know how to modify loan terms to get borrowers paying again -- or to take over properties when borrowers just can"t get current, even with modified payment plans.