Posted by Brian J Condit on December 20, 2001 at 22:01:10:
I have a question on partials.
I understand they are less risky because the investor has less money tied up in the investment. I also understand that in the case of default that the original note holder/seller must make up the payments to protect the back end of the note.
If I am wrong about this so far please let me know. I may need to do some more research on these before I go any further.
Because the front end of the note is more interest than principal, note broker often inflates the yield by taking a larger commission. This is concealed by the fact that,at the end of the partial period, there is often a balance remaining on the note that when added together with the partial offer and all the payments received to date, the person may believe that they are getting better than a 100% offer.
My question about all this smoke and mirrors is what happens if the note pays off early. I know that it is good for the investor, but what do you tell the original note holder/seller. Unless I am not doing the math right he is not going to be getting the deal he thought.
If any one has an answer, with a couple of examples, I would greatly appreciate it.
Thanks in advance for any help offered,
Brian Condit