You can increase the ROI on your note deals by decreasing borrower confusion. We have all had issues ourselves with banks, credit card companies and other vendors that can be difficult to sort out. Lenders and loan servicers definately don’t always make it easy for borrowers to understand what is going on with their loan and what they need to do. When you combine this with borrowers who sometimes have very low levels of financial literacy, you can end up with loans that aren’t performing even when the borrower has the ability and willingness to pay. If you can be a lender who makes the situation clear for them you can generate a lot of goodwill and get more of your loans paying. I’ve had more than one borrower thank me for spending time with them on the phone and ask me to never sell their loan. Here are some examples of borrower confusion I have run into: Borrower didn’t understand they had a land contract and weren’t on title Land contracts meet a need for lending on sub-$100K homes that banks do not typically lend on. Most people don’t understand the difference between a traditional mortgage and a land contract to begin with, and the borrowers on these homes often didn’t fully understand what they were signing up for. I recently had a borrower call me who was in the process of refinancing with a bank, and got stuck when the title company found she wasn’t on title. She didn’t understand why she wasn’t on title as she thought she had a traditional mortgage when in fact she borrowed under a land contract. After explaining to her how a land contract works, I was able to call her bank for her and the provide them with a copy of the land contract and other information they needed to process the loan. If a borrower wants to pay me off in full for a loan I acquired at a discount, I’ll go out of my way to help them 😉 Not understanding there is a difference between who owns the loan and the loan servicer When you take out a home loan there is someone who owns the loan itself, and then sometimes a separate company which services the loan. If a loan is sold from one firm to another the servicer often changes as well, but not necessarily. With my loans I like to keep the loan with the current servicer if possible. That speeds up the transfer process and reduces the risk of things falling through the cracks or the borrower becoming confused. Or so I thought….. On one of my loans the borrower stopped paying soon after I purchased it. The borrower ended up calling me directly to get things sorted out. What happened was the servicer had sent out a letter to the borrower informing them that their loan had been sold to me. This is perfectly normal. But the problem was the borrower didn’t understand that the servicer was staying the same. He assumed that since his loan was sold he needed to send future payments somewhere else. But he never received instructions on anywhere else to send them, so he just stopped. When I spoke with the borrower he was genuinely confused, and was worried about losing his home. He knew the loan was already delinquent and assumed a foreclosure was looming. We were able to work out a forbearance agreement, and now hopefully payments will be rolling in and we’ll have everything on track in a few months. I have several other examples of borrower confusion. I don’t like for each of these to be too long, so I am going to break this into a multi-part post and will continue with more next week. |
