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Nonperforming notes are defaulted mortgages bought at a discount, and Dave Van Horn has been buying them since 2007. He is the co-founder and chief executive officer of PPR Capital Management, and he joins Alternative Investing Advantage host Alex Perny to explain how this debt actually gets resolved. The property is rarely the goal.
Key Points:
- Defaulted mortgage debt trades at a steep discount. The buyer then works with the borrower toward a resolution rather than moving straight to foreclosure.
- Junior liens and first mortgages need completely different due diligence. Second liens are underwritten statistically across a pool. First mortgages hinge on the equity and value of the individual property.
- Borrower intent drives every outcome. The first question is whether the homeowner wants to stay or wants to go, and the exit follows from that answer.
- There are roughly six exits on a distressed loan. Modification, discounted arrears, discounted payoff, deed in lieu, foreclosure, and selling the asset outright.
- Note pricing moves with real estate values. When values fall, this paper gets cheaper, and margins widen, which is why a downturn tends to be a buying season.
Chapters:
00:00 Introduction: investing in nonperforming notes
02:28 How Dave Van Horn moved from contracting to distressed debt
09:27 Junior liens versus first mortgages
15:21 Due diligence and risk mitigation on delinquent loans
20:02 Borrower intent and how loan modifications work
30:23 Why keeping homeowners in their homes pays more
36:19 Institutional capital and mortgage securitization
46:22 Outlook for distressed mortgage supply and pricing
50:04 How to connect with Dave Van Horn
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Learn more about our guest, Dave Van Horn: https://pprcapitalmgmt.com/
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