2nd mortgage: 65 cents for 1 dollar. Is it a good buy?

[比花花还花]

Someone offers me to buy a $10,000 2nd 30-yr mortgage (pays 8%) for $6,500 with no-prepayment penalty. That is 35% discount. I do know that it will not in default.

It seems a great deal. What are the formulas to calculate rate of return?
(是不是就是大约计算 interest = 800 /yr
800 / 6500 = 12.3%

是不是基本上 2nd mortgage 就是 大概 ６０－７０ cents per dollar?

[njrookie]

a high yield mortgage bond should sell at a premium, not a discount. the question here is the risk of default, ie underlying borrower not paying and walked away from property. in that case, you might lose principal even if you bought it at a discount, if the recovery from property is low.

[比花花还花]

[njrookie]

in that case, it is indeed a great deal. your return will be higher than that since once it is paid off, you will get the full 10K par back, not the 6.5K you paid, which boost the return further.

so an early payment is actually better for HPR in your case.

just my 2c.

[万 枫]

Great deal if what you have said is true.

[jeepster]

[texastrader]

To judge any note is good deal or not, you need the following info:
1) how likely it is going to perform or not
2) what is coupon rate
3) what is loan to value ratio, which is (1st and 2nd loan combined balance)/market value of the property.

2nd loan can be as cheap as 10c on a dollar, but this could be a good deal. Without the third information, it is hard to judge.

[夜来听雨声]

[比花花还花]

[小心翼翼的小地主]

听起来不错耶，但为啥要卖还35%off?

[明前茶]

[人参公鸡]

[texastrader]

1st lien是谁？如果1st是其亲戚朋友也不行。他可以策略性default，来wipe out second lien。

[amanman]