Small Fish in a Big Pond

I've never really played in the arena with a big advantage. I remember back in the days of being a mortgage loan officer, the companies I worked for never had the best pricing, never really had the best systems, and never had the best marketing. Everything I earned was due to my work, and the team I had around me. I had to do it the old fashioned way: I earned it.

I was reminded today I'm in this note arena without a big advantage. First, Fannie Mae notified the world they are selling a large pool of re-performing notes. They are selling 18,300 notes with an unpaid principal balance (UPB) of $3.4 billion dollars.

That's a pretty large pool. If you click on the link, there is a link within that page that takes you back to all the sales since 2015.  The Post-Sale News Release is an interesting read for a note investor at my level. You can see FNMA has a sale in February 2020 where they sold $12,700 loans with $1.8 billion in UPB. There were 3 pools in that sale, with one buyer taking 2 pools and one other the 3rd pool. Eventually, we hope, some of these loans will trickle down to my level.

Second, I was sent a tape of 56 loans with the UPB just over $11 million. Looking a the tape, that was definitely about a dozen of those that were interesting. I started my process of elimination, breaking down the tape, then I thought to ask the seller if this pool was all or nothing. It was. I was a bit short of the projected $11 million, or even $8 million to purchase the whole pool. I wasn't going to be allowed to pull out a dozen from this tape. Sigh.

So the reminder to me is that there are big players in this realm of note investors. Institutional investors with large capital positions definitely have the upper hand when it some to buying larger quantities of notes.

I'm not at that level.......

But I don't have to be.......

It comes down to a decision about being an enterprise business or a lifestyle business. I'll save this explanation for another message, but the basic thought is I don't need a huge enterprise to supply me with the income source to produce the lifestyle I choose. 

If you backward engineer the income you need to provide you with the lifestyle you want, then the pond isn't as big. If you owned 35 notes with an average UPB of $85,000, and they netted a simple return of 9%, that would make your monthly income over $22,000 a month. Now, I think I could live on that. 

Now, I know there are thousands of IRA accounts out there sitting in their cash account returning very little. Even having $250,000 in notes, returning 9%, would add almost $2,000 in income. Interesting concept as one starts to contemplate lifestyle levels upon retirement, isn't it?

So, even though the pond is big, we small fish have room to grow. And we're growing. 

Cody L Cox