Buying Discounted Mortgage Notes May 2026

Banks may need to clear their books to free up capital for new loans.

If a borrower has stopped paying (a "non-performing" note), the bank may prefer to sell the debt at a steep discount rather than deal with the lengthy and expensive foreclosure process. buying discounted mortgage notes

The core appeal of this investment lies in the "discount." Banks and private lenders often sell mortgage notes for less than their face value for several reasons: Banks may need to clear their books to

These are loans in default. While riskier, they are sold at much deeper discounts. The goal is work-out or equity . An investor might negotiate a loan modification to get the borrower paying again (re-performing), or they may complete the foreclosure to take possession of the property at a fraction of its market value. Risks and Rewards While riskier, they are sold at much deeper discounts

By purchasing a note at a discount—for example, buying a $100,000 debt for $70,000—the investor immediately increases their yield. They receive interest payments based on the full $100,000 balance, even though their actual capital outlay was significantly lower. Performing vs. Non-Performing Notes Investors typically choose between two primary paths: