| The Update on Real
EstateTM is a newsletter created by Keith D. Harris
and includes helpful and useful tips on note purchasing. A few of the articles that
were in the last issue are below. If you would like
to sign up for the newsletter, please fill out the form
below.
The Hidden Market-Real Estate Paper
Are you aware of just how large the paper
market or the seller financed mortgage market truly is?
One out of thirteen homes sold in the U.S. has some kind of
seller financing. further, this market continues to grow
at the rate of $4 billion dollars per year.
The government and industry sources estimate
that $335 billion dollars in private paper exists in our country
right now! Of that total, nearly $100 billion dollars
consists of residential private mortgages.
Just what is private paper or
seller-financing, anyway? Generally speaking, private
paper refers to the notes and security instruments created by
private parties.
Private parties are those individuals or
investors who are lending from personal assets rather than
through large institutional lenders.
Although the majority of private paper assets
exist in the form of mortgage notes generated when sellers carry
back some or all of their equity in the properties they sold, a
great deal of private paper is also created as a result of other
types of transactions.
Attorneys for example, have taken promissory
notes secured by real estate as payment for legal fees.
Swimming pool builders and home improvement contractors use the
private paper device to secure payment for their work.
Real estate brokers have taken private paper for their
commissions. Bailbondsmen often take private paper
security for their bail funds. divorce and private
settlements frequently utilize private paper to facilitate the
equitable distribution of assets to the affected parties.
Many folks believe that the growth in the
mortgage industry and the low interest rates our economy has
enjoyed over the past few years has wiped out the need or
inclination for private paper. this is not true.
Since 1993, residential private paper assets have grown from $75
billion to approximately $100 billion. That's $4 billion
dollars per year in new private paper created over the past six
years.
Notable -- The Market
the note industry is structured comparably to
traditional mortgage markets. there are at least eight
major institutional note buyers, purchasing upwards of $600
million in private paper cash flows annually. Their
purchasing programs, pricing sheets, submission packages, and
paperwork requirements are remarkably parallel to the mortgage
industry. So too, are the distribution channels, wherein
money meets consumer.
Behind the big boys sit 80 or so small
institutional investors, equivalent to regional mortgage
banking/mortgage wholesaling firms. These firms purchase
notes for both their own accounts, and to pass on to the bigger
companies. Fifteen hundred individual note brokers,
scattered all around the country, funnel the notes up through
the channels.
At least four major national conventions are
held each year, drawing note industry people together from all
over the country. These affairs offer participants a
highly interactive environment for sharing ideas and exchanging
information; segmenting the events into trade shows, seminars,
trading floors, and social mixers. These conventions have
dramatically spurred the quality, expertise, and interaction of
the professional specializing in transacting note deals -
driving the liquidity found in the contemporary note market.
Today's note brokers are making deals happen
that just couldn't get done in the past, bringing this
previously hidden market of private paper assets into the
mainstream of American real estate financing.
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