Weighing a blended bid on a four-note pool when one note 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 to settle before anything else is the assignment chain on each of the four notes. Originator to whoever, whoever to the seller, all recorded, with an allonge endorsement chain that matches. Gaps get expensive to fix, and how to fix them depends on the state's recording and curative practice, so that is a question for a local real estate attorney rather than the forum. On note D specifically, if the chain is dirty and the borrower is thin, that is two problems that tend to surface together at the worst moment. Price it as if the paperwork will cost money, because on a 62k balance a $3,500 cure is 5.6 points.

ITV is the loan balance over the property value, so 87% means the borrower has 13% equity and 54% means they have a lot. The scary part is that if you foreclose, the costs come out of that 13%, and there's often nothing left after fees and time. On why buying at 84 raises the yield above the 8.5% coupon: the full 876 monthly payment still comes in, just paid less to get it, and repayment eventually lands at the full 96,400 on a smaller outlay. That gap between price paid and balance owed is what pushes the yield above the coupon.

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 that 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 the seller is now a forced seller in a county of 9,000. That's selling into 60,000 gross, netting maybe 54,000 after commission, against 60,600 plus costs. That's underwater on the whole position, not just the discount. At 84, that's 1.6 points of extra yield over A being paid to take that on. That's not payment, that's decoration. If the pool gets bid, D belongs in the low 60s, and it should be fine 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. Bidding the three at 84 and telling the seller plainly the offer for D stands whenever he wants makes sense. 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 that buyer was 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 that would be used anyway, keeping them on is worth putting a number on.

Run the arithmetic on the seller's own quote. Pool ask is 268,320. Pricing A through C at 84 puts their share at 210,000. That means the seller is charging 58,320 for D, which is 94 of UPB. At 94, D yields about 10.8 percent to maturity. A at 84 yields about 11.2 percent. So the loan with 87 percent ITV, 14 payments of history and no comparable sales is priced to yield less than the loan with 54 percent ITV and four years of history. That is the whole thread right there, and it is not a judgment call, it is the tape being wrong. The clean response is to send the seller that exact calculation with a bid at 81 blended. A relationship that cannot survive a spreadsheet was never really a source, it was a habit. And sextant's severity math is the reason 81 might still be generous on D.