By selling a note with First National Acceptance Corporation, you can get up to 97% of the UPB. In this episode, Dan Deppen sat down with Rachel Sims of First National Acceptance Company (FNAC) to discuss what exactly they do. Rachel has been purchasing Notes for over six years and is now working with performing and reperforming Notes in all 50 states. FNAC buys notes from individual investors and brokers. Rachel discussed their process for buying notes, how COVID didn’t disrupt their business the way they initially expected, and also some unique situations they have run into.
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How To Get Up To 97% Of UPB When Selling A Note With Rachel Sims
Note Selling And Brokering With Rachel Sims Of First National Acceptance
I’m with Rachel from First National Acceptance. How are you doing?
Thanks so much for having me. How are you?
Good. Thanks so much for joining. I have been meeting to have you guys on for a while. First National Acceptance is a company that I have used a handful of times to sell notes. It is my favorite place to sell notes if I can. You can start by giving us a little bit of overview of what you guys do and what your role is over there.
We purchase first-performing notes in all 50 states. We do not have a cap on dollar size high dollar-wise. We do prefer a balance over $25,000. Other than that, we are pretty straightforward. We step into the seller’s shoes. We take overall servicing from there and out. We do not change the terms. We do pay all closing costs. Appraisals, evaluations, and all the legwork that is going to go into getting the note closed. We are going to for that. We are going to get you closed within about 26 days. It is our turnaround time now.
What is the process for new investors if they want to work with you guys and have you give them a quote?
We can get a quote pretty easily as long as we have the terms and property address. I’m always going to say, “If you can get the borrower’s information, if it is going to be non-personal guaranteed, or guaranteed. If you can give us their name, that will help us get you a solid quote right upfront. The terms are going to be ideal, knowing the interest rate, how long your money is going to be invested for, and how the property is being used. Our top brokers seem to be successful, and right up front, they say, “We have a house, but this house, the borrower is using it as a rental.” Knowing how the property is used upfront has helped get a clear quote right out of the gate.
What I like about working with you guys is you got such a clear process. You fill in all the information, and you guys have your processes on your end. Come back and say, “We can do it this is the price, or we can’t.” One of the things I deal with when I sell to individuals is it can be a pain because folks are all over the map. We reach a deal, and they come back later with some concern or try to change the price without a real reason. A lot of those do not go anywhere. I like it with you guys. It is all defined, like, you know exactly what you are dealing with.
We try very hard. Sometimes that evaluation might come in not the way anyone is expecting. There is nothing we can do about that one, but as long as you have a good note, a good evaluation that comes in, and a clear title, some of our files are closing within nine days. Our processors are diligent as soon as they get an approved file. They already have the title most of the time. They are waiting on a few items. They are ready to go and get this thing closed.
You mentioned 26 days. All the ones I have sold to you guys have gone quite a bit faster. Probably closer to that nine days.
I’m taking in all of our loans. Those mobile home titles that always get lost over have some easement issues that we are working on with the title companies to get clear. We buy anywhere from 80 to 150 loans every single month. It is collateral from vacant land to commercial. We even have a few mobile home parks that happened to come about. All of those, in general, we take into consideration for our time to close.
I did not even know you bought all those other kinds of loans. For me personally, I only do single-family residents, but that is interesting. You can buy others.
Single families are prime bread and butter. We love them. If you have single-family residents in a residential area that has good equity, all my word. We are all over it. Some of our offers go down to a 3% or 4% discount on those ones or good state. We want those.
When you say 3% or 4% discount, you are implying what you are paying is in 90% plus balance for those. I like working with you guys because you pay the highest of everyone else, but your underwriting standards are tougher. What I found is if I can sell it to you guys, I do. If stuff has is here on, and I can’t. I have to go elsewhere.
I will say having as much due diligence and upfront if you have a new note that the purchaser put 20% or 30% down. As underwriters, we want to see it. As analysts, too, we want to see that the purchasers invested in this property and there are into it for the long haul. Our underwriting process, I do feel, is going a lot better. As analysts, we know exactly what we want upfront. We want six months pay history and a good evaluation to come in, but our underwriters are great to work with and try and find a way to try and save the deal if we can. Sometimes we can’t buy them all.
The ones I like to buy are a little sketchy or a little hairy because I can pick them up cheaper and I can deal with them.
You probably get a great deal on those.
If I want to turn around and sell them, that sometimes limits. If somebody is new to note investing and wants a broker note or sells one to you, what are some things people should be thinking about, or some of the common mistakes you see people do?
A lot of the common mistakes are people do not get that information about how the borrower signed upfront. We have many people that say, “Assume this borrower has 700 credit. We get the note, and it is signed in an LLC. There is no credit to be held accountable here.” If that business decides I’m not paying and I’m closing, we can’t go after an actual individual anymore at that point.
Have as much due diligence and upfront before you sell a loan. Click To TweetYou have property as collateral, but we are buying that paper. We want that cashflow. We do not want to have that opportunity for the cashflow. Knowing that getting everything that you possibly can upfront. When I say that, “When did that first down payment happen? What is the true interest rate? Is there a balloon?” Having a balloon or no balloon affects the investor’s pricing. If we are going to be tied up for a traditional 30 years, as opposed to eight years, appraising changes significantly.
In which direction?
We will pay more if our money is invested for a smaller period of time.
If there is a balloon payment attached, that increases the value.
I would also find that most of our brokers or sellers who understand the benefits of a partial are huge, especially when you have a property that has no idea where it is going to value. Maybe properties in the area have tanked, or there is no other opportunity in the community. You are not building anything new. What is there, is there.
Knowing a good partial, if you get a raggedy value, your payment history is a little spotty or area concerns, if there happened to be a flood not too long ago, tornado zones, hurricanes sometimes. Partials are a solid way to go. The more people understand the seller’s aspect. They are getting them wrapped up quickly in a handful every single month that they are closing on.
You are saying that you will buy partials from a seller like you will buy some of the payments versus the entire loan.
Everyone is going to tell you differently. Either way, we are happy to quote it, buying a straight percentage of the unpaid balance and/or estimated amount of payments. We can get you some cash out of it now, turn around and buy more of it later to get you some capital out. A lot of our investors or a lot of our businesses as sellers are always looking for ways to get some capital without having to pay it back or pay interest fees. Interest rates are all over the place now. Why take out a loan when you can get some capital out of your note? Maybe your life changes, and you can take those payments out later, take the payments back, or sell in partials all the time. You have constant capital flow.
How do the mechanics of those partial arrangements work? Would the seller with the loan get transferred from their loan servicer to yours? I’m guessing you have like a partial agreement. I was curious how that worked, the nuts and bolts of that.
It can work in a couple of different ways. We are happy to service any loan we hold, but if you were buying a partial and the purchaser loves that servicing company, they can keep the payments going through that servicing company. The only difference that the purchaser is going to see is who or where the payment gets submitted from the servicer’s end. What that would look like is that we bought 20% of your loan out. We cashed the seller that 20%. During that timeframe, First National is the one collecting payments. They have assigned a portion of their note over to us.
After our balance is paid off as we agreed with the seller, we either release the payments back, or sometimes the seller wants another partial offer. The payment stream from the purchaser’s aspect is straightforward. If there is no servicing in place, at that point, they will send it directly to us. If they prefer that servicing, their services are great to have in place. They are more than welcome to keep paying those servicing companies.
The question people always ask on the partial agreements is what happens if the borrower stops paying?
That is always the tricky one because why are we talking about them to stop paying?
Hopefully, that does not happen.
Our customer service is great at getting the seller on the phone to see if they are happy with us working out a situation with the purchaser. COVID took everyone in a whirlwind. Maybe they need a smaller payment made for a certain period of time. We are happy to work with them as long as the sellers are on board too, and if it makes sense for a purchaser to skip a payment or reduce the payment for a little time. Until the balance gets paid off, sellers always have the option to come in and find a way to get it transferred back over to them.
During COVID, what did you guys see? Did you see most borrowers hanging in there?
We were prepped for the entire industry to take all 50 states. We were ready for it, but it did not happen. We did not see hardly as many loans going to default. We did not a handful of people use a skipped period, a grace period, or something along those lines, but all the way from Maine to California, our loans perform well, and we are still buying. December of 2020 was one of the greatest cashouts we have had in the history of us buying for many years, which none of us have seen happening, but it was.
I was in the same boat. I had that same thought process when that hit. I was like, “I need to buckle up and be on point for everything because this is going to get weird. I need to figure out how to negotiate this.” I assumed everything was going to be completely red, and it did not. Everybody hung in. I do not know if it was because of all the stimulus checks or people prioritizing their home payments, but I was pleasantly surprised.
When buying a loan, buy just a straight percentage of the unpaid balance or an estimated amount of payments. Click To TweetFrom our aspect, I think people value that home payment and their collateral. We do purchaser interviews on a handful of our files. When COVID first happened, we were pretty firm on doing purchaser interviews on probably 90% of it. What that is us touching base with the borrower before we closed to make sure collaterals, everything you thought it would be, and payments no problem. Make sure there are no other terms out there. In our purchaser interviews, maybe 1 out of 10 said that they might be looking for that stimulus check or relying on it, but it took us by surprise how well borrowers performed through this timeframe.
Maybe you can talk a little bit more about those borrower interviews because one part of your process that I find unique. When I’m selling a loan, you guys are the only ones I will allow to talk to a borrower. If it is anybody else, there is no way on earth. There are many jokers. It is a unique thing that, at least for me, isn’t typical.
We come off in the purchaser’s favor. It is just, “Hi, this is Rachel calling on behalf of the seller.” We do not usually use a company name because we do work with brokers and sellers directly, “We wanted to let you know that this loan was looking to be possibly transferred.” We make the call as a financial opportunity for the borrower. Either way, however, the sellers are concerned about going about it, we are happy to work it on. Our point is we want to make sure the terms you signed were true and accurate, and there are no other terms out there.
You have the property there. Why do not you tell me about the property? You do not want to talk about it. That is okay. Thanks for giving me that point of contact. We have a few circles to go around it. Sometimes we will do a purchaser interview, and I have numerous times. For example, I had a seller bring me two copies of a side note. One said that the first payment started in January of a certain year, and one said it was started in July in another certain year.
It is good to get a borrower on the phone in that situation and say, “How long have you making your payments on this? We want to make sure the balance is accurate.” I have had a file where the appraisal came back and said, “There is an entire tarp on the back of the roof, and there is no roof. It is getting all repaired.” I’m like, “I know these people have kids. How would they be living in a home with three kids? It did not make sense.”
I got on the phone with the borrower, and she was like, “We have a lot of sap coming down from the maples behind us. It damages the roof. They are replacing it. There is a roof.” We were still able to close both of those loans in those situations. Having an under or borrows end of it, as opposed to only taking the seller’s word or an evaluation that came in spotty, can clear up a situation and move forward to get that closed.
I never take the seller’s word. I always have to verify every trust.
We have a situation when in that two notes situation. The seller was like, “We went to pay.” S0he started thinking about she was going to pay for it for so long, but she did not start paying. I was like, “That does not seem fair. Why would she sign saying she paid a whole year and a half prior to this one.”
The other thing I found out is I bought loans, where I found out they were unrecorded land contracts, where that borrower was long gone. I was able to chase them down and get them to sign the release. There are all kinds of interesting things or interesting living situations. I had one where the water was shut off for a couple of months.
It was in Michigan, and the guy was living there because it was wintertime, and I had pictures. You could see car tracks, and people were going in and out. I called the city back. I was like, “Are you sure the water is off?” They were like, “It is off.” I moved away, but that one seems weird. I do not think I closed on that one, but some of the situations can be awful.
They can be very weird, but I’m glad you called the county. That is always a good aspect too. Sometimes I’m quick to get on the phone with them, “What is your take on this? What is going on?”
I have had ones where the seller was like, “It is owner-occupied.” Everything is good, and you make some calls. It is like, “The power has been shut off for eight months.” I’m like, “Okay.”
I had a seller not even know. He was like, “I’m receiving payments on this note. I want to sell it.” He was an older gentleman. He used to live on the property 3 or 4 years into the note. It is a great seasoning. I’m like, “This is going to be a great deal. You have a lot of seasoning.” The evaluator goes to the property. The house burned down probably a month and a half before that. The insurance has not been figured out at that point.
He did not talk to the purchasers, but they are still making their payments. We can’t move forward right now. I had one, and I was looking at the loan service or records. I saw this payoff for a loan. I’m like, “What is going on?” They are like, “The house burned down. The insurance paid off.” I’m like, “Holy cow.” I had no idea. Do you guys ever sell loans yourselves, or do you buy them?
We buy. We do not sell. We try to get borrowers. If they go into default, we try hard to work with them to get them on track in any way that will make sense for them to keep moving forward, to congratulate them on a payoff in some way. If it goes South, we do have an ROE part of the bank that will sell property, but not the note itself. At that point, it is already gone through forfeiture, and we are selling the property.
I was going to ask you, and I understand if you can talk too much about it, but about the business model, are you guys holding all of these notes, or are you selling them to big institutions? I was curious on the backend how that.
We are still holding them. We do buy from other banks, but we hold them. That is to our horn. First National is a solid bank in the State of Michigan. We buy and hold.
What is your view of the total market now? I know we talked about how COVID went better than people expected. I know now in this environment where inflation and interest rates are starting to go up, but real estate prices seem like, at least in Colorado, I continue to run-up. It is pretty insane. I was interested in your view since you see more states and have a wider lens.
Trust and verify everything. Never take the seller's word for it. Click To TweetFun that you brought that up because I have a few coworkers that we talk all day about what is going on everywhere in every state that we see. Property values skyrocketed. The thing that we see trending is what happens when property values go under? Is that going to come up? Is it going to come up? When would it come up?
History always repeats itself. I believe we will eventually go through a time when we have strong collateral a few years prior, and the values have not increased. Maybe they stay the same or decrease a bit. Partials might be your best way because a partial protects that rocky evaluation situation or where the value truly is, but interest rates are going up, cost of money and borrowings are going up. I do believe you will send me a quote request in the next few weeks. You will probably see something that I might be at. I possibly might be betting that close to an 8% now. We know the industry is going up a little bit on their yield that they want to see because of what investors are borrowing our buffets at.
I think note buying, we are going to see a major increase on that too. Interest rates are going to go up. It is going to be harder for other borrowers to possibly get into a conventional loan. I believe that only 25% or 30% of Americans qualify for traditional lending. I think the note buying and contract buying will get picked up. A lot of people are going to be more interested in at a 7% or 8%, or whatever they can get originated. The note buying industry is going to keep going up from here.
Those aren’t bad. You are talking about a 7% or 8% discount. Someone is selling you a loan. Maybe they are getting 92% of the unpaid balance instead of 93%. That is still super awesome. It is a change, but it is not.
I think our offers will still be in the 90%, especially on your solid loans, but some of the yields are going to go up.
That is normal, but real estate and the economy, in general, have always had those cycles. I grew up in Florida. There was a good banker a while back called a bubble in the sun that talks about the Florida real estate booms and buses going back to the 1920s. Over the decades, there has been a cycle. We are in this interesting period where it seems like every property I look at has a boatload of equity, unlike several years ago when it seemed like everything was upside down. At some point, that will change and will connect.
To your earlier point, I think that is why it is important to understand what kind of down payment the borrower made and how much skin they had in the game. I have seen some loans that are thin in their own payments, and it does not take much for the market to turn, and all of a sudden, they get underwater. Now, their whole equation for how tight they are to that can change radically. That is probably pretty good stuff and points to ritual. Thanks so much for coming on. I appreciate it.
Thanks for having me. It has been great. I’m looking forward to seeing some more quotes for me coming in.
I’m working on it. I have been holding everything. I have been trying to buy more stuff. I do not want to let any stuff go, but hopefully, I will get some pretty soon. Are you guys going to be out at Paper Source?
We will. Stop by and see us.
I look forward to seeing you guys out there, and how can people get a hold of you if they ever know that they want to sell?
You can feel free to give me a call or shoot me an email. My email is Rachel.Sims@FNBA.com, and my phone number is (517)336-7623.
Thanks again. I appreciate it.
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About Rachel Sims
Rachel has been purchasing Notes for over 6 years. Prior to purchasing, I used to originate Mortgages and HELOCs. I am very familiar with 2nd liens due to my origination days and have been able to close many 2nd lien Notes for the Bank. I work with performing and reperforming Notes and Contracts in all 50 states! I work with both Brokers and Sellers direct. I pay up to 97% of the UPB.
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