The Mortgage Note Industry

The mortgage note industry is all about cash flow. It is the buying, selling and brokering of privately held promissory notes, which are often backed by real estate. This is known as the secondary market and refers to people or companies that are set up to buy notes, with no banks involved.

These private investors, in the secondary market, are the funding sources that buy future payments for hard cash and are set up to purchase IOU’s which individuals, like you, may be holding. There are also buyers for notes backed not only by real estate but, boats, airplanes, cars, mobile homes, businesses, annuities and even lottery winnings. For the sake of this article we are discussing mortgage notes only.

The important thing to understand is that the buyer does not really buy the balance on the note, but would be purchasing the value of the payment due in the future. This value depends upon many factors, such as the age of the note (called seasoning), the interest rate, the length of the term and, of course the payment history. This is called discounting. Three reasons for the discount are:

1. The buyer has to allow for the possibility that the note could be paid off early.

2. The buyer is giving up access to cash so that the seller can have cash. Because of inflation, the money used to buy the note today is worth more than the future payments several years down the road.

3. The buyer is assuming all risk that the note may default when the payer stops paying the mortgage.

Currently there are approximately $350 billion (yes, BILLION) in mortgage notes in the United States alone. This creates huge opportunity for a booming industry. Most of these mortgage notes are legally recorded at courthouses across the nation. All recorded documents are public records and this is a frequently used resource for the note industry’s finders. Finding note holders eager to sell their income stream can be very time consuming, so most note buyers rely on note finders, often referred to as note brokers, to bring them prospective deals.

It is the job of the note broker to find note owners that have a desire and/or need to sell their mortgage note. Most people are not aware that they can turn their monthly payments into hard cash. A note can be sold in its entirety or a portion can be sold. There are many alternatives available to meet the needs of the note holder.

A note broker spends many hours doing research, making cold calls, mailing flyers, note cards and newsletters as well as other methods to track down prospective deals. When a note holder is found and the deal closes, the note broker collects a fee.

Today, thousands of people all over the country have tapped into this market and are making a full- or part-time salary in the mortgage note industry. This, in turn has created another industry made up of note finder experts who are willing to teach and mentor individuals to take advantage of this great opportunity.