Seller wants a blended 86 on four notes, and one of them is the problem

Before any of the pricing conversation, get the servicer's own payment ledger for all four, not a spreadsheet the seller built. I've been handed clean-looking histories that turned out to be the seller's summary of a history that had two 30-day lates and a partial-payment plan in it.

Other things I'd have in hand before funding: current tax status pulled from the county direct, current hazard policy with the correct mortgagee clause, whether any of the four escrow. A non-escrowed loan in a state with a fast tax certificate process is a different asset than an escrowed one at the same coupon.

meridian is right about modifications. Ask for the full collateral file on all four, and if the seller only wants to produce it after you commit, that answers your question about the relationship.

Naive question from the cheap seats. Four notes means four boarding fees, four assignment preparations, four recordings, and recording costs differ by county and state. What's that per note, a few hundred? If it's meaningful it argues for keeping D rather than doing three small ones, since the fixed cost per note is the same whether the note is 62k or 96k.

The thing I'd want settled before anything else is the assignment chain on each of the four. Originator to whoever, whoever to your seller, all recorded, and an allonge endorsement chain that matches. Gaps get expensive to fix and how you fix them depends on the state's recording and curative practice, so that's a question for a local real estate attorney rather than the forum.

On D specifically, if the chain is dirty and the borrower is thin, you have two problems that only show up together at the worst moment. Price it as if you'll have to spend money on the paperwork, because on a 62k balance a $3,500 cure is 5.6 points.

Can someone explain ITV to me plainly? I think it's the loan balance over the property value, so 87% means the borrower has 13% equity and 54% means they have a lot. And I assume the scary part is that if you foreclose, the costs come out of that 13% and there's nothing left.

Also still working out why buying at 84 raises the yield above the 8.5% coupon. Is it just that you get the full 876 a month but paid less to get it, plus you eventually get repaid 96,400 on a 80,976 outlay?

vellum, yes on both, and the principal repayment part is the bigger piece on a short-remaining-term note.

thicket, D at 84 runs around 12.8% to maturity by my math, which is why it's tempting. That's the wrong number to be looking at. Run loss severity instead. Say D defaults in year two, balance is roughly 60,600 by then. Judicial foreclosure, add advanced taxes, attorney, preservation, and however many months of nothing. Call it 12 to 18 points of balance in cost, and then haircut a 71,000 BPO by 15% because the BPO was built on three comps and you're now a forced seller in a county of 9,000. You're selling into 60,000 gross, netting maybe 54,000 after commission, against 60,600 plus costs. You're underwater on the whole position, not just the discount.

At 84 you're being paid 1.6 points of extra yield over A to take that. That's not payment, that's decoration. If you're going to bid the pool, D belongs in the low 60s and you should be willing to hear no.

Why is this a pool at all? Four firsts with clean history in the 50s ITV sell as singles all day. The pool exists because D doesn't sell as a single.

I'd bid the three at 84 and tell him plainly you'll take D at your number whenever he wants. Then wait. If he can't place it in six weeks he comes back. The risk is he sells the whole tape to someone who wants the blended headline yield, and that happens, but you were never the buyer for D anyway.

Who's servicing these now and does the current servicer stay on? Transferring four loans at once means four goodbye letters and four hello letters, and every transfer is a chance for a borrower to get confused and miss a month. If the existing servicer is one you'd use anyway, keeping them is worth something you should put a number on.

Do the arithmetic on the seller's own quote. Pool ask is 268,320. Your price on A through C at 84 is 210,000. That means the seller is charging you 58,320 for D, which is 94 of UPB.

At 94, D yields about 10.8% to maturity. A at 84 yields about 11.2%. So the loan with 87% ITV, 14 payments of history and no comparable sales is priced to yield you less than the loan with 54% ITV and four years of history. That's the whole thread right there, and it isn't a judgment call, it's the tape being wrong.

I'd send him exactly that calculation with the bid at 81 blended. If the relationship can't survive a spreadsheet it wasn't a source, it was a habit. And sextant's severity math is the reason 81 might still be generous on D.