Reperformer at twelve clean payments: sell the paper or keep the yield?

Question

File I bought at $38k against a $91k balance, single family in a mid-size southeast metro. Borrower signed a modification, payment reset to $645 with taxes and insurance escrowed, and December was the twelfth consecutive payment on time.

A buyer I've traded with indicated low 60s on balance for seasoned reperformers of this shape, so call it $55k gross, less a small assignment and recording cost. That's roughly $17k over my basis in fourteen months on top of the payments collected.

Holding gets me about $7,700 a year of scheduled payments on $38k of basis plus around $4,100 I advanced for back taxes. The amortization is slow at that payment, so most of the return is the payment stream and the eventual payoff or resale, whenever the borrower moves or refinances.

The case for selling is that twelve payments is where the price curve is steepest and a re-default at month sixteen costs me the premium and puts me back in a foreclosure I already avoided. The case for holding is that I'm being asked to give up a mid-teens current yield on cheap basis and then go find another file, and finding files is the hard part.

Curious where people land, and on what evidence.

megan_doyle15 · Answer

What makes twelve payments the number? Is that a market convention or just when it starts to feel real? And if the borrower re-defaults after you sell, does any of it come back to you?

marcus_hale41 · Answer

@rigging twelve is a convention because a lot of buyers won't touch anything with less, and the bid improves fast between six and twelve and much more slowly after twenty four. Whether a re-default comes back to you depends entirely on what's in the assignment agreement, and small trades sometimes carry an early payment default clause with a look-back window. Read it, and if you're selling, know what you agreed to before month sixteen arrives.

@tally, I'd want two things from the file before deciding. Is the borrower paying by ACH or mailing checks, and has any payment come in late-but-within-grace. Voluntary ACH on time twelve times with escrow current is a different asset from twelve payments where four landed on day thirteen. Also whether the mod deferred arrears to a balloon, because a buyer's diligence will price that and yours should too.

If it's a clean ACH file I'd hold and let it season toward twenty four, since the bid rarely gets worse for payment history you actually made. If it's a grace-period file I'd sell into the current bid while the history still reads clean.

Reperformer at twelve clean payments: sell the paper or keep the yield?

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