How should I price my bids?

You should bid an interest rate that takes into consideration both the mortgage risk profile, the rate adjustment due to defaults, and the IRESE Real Estate Note servicing fee.

How do I determine a Real Estate Note auction risk profile?

Before the Real Estate Note auction, Broker collects, verifies and provides Mortgage Financing borrower credit verification, existing debt obligations, incomes sources and expenses, and other loan information.

Understanding Risk Profile

All of the above can be used to assess the Real Estate Note risk profile. Each investor might use a different model to evaluate the risk profile associated with a specific loan, thus creating unique risk profiles. Each risk profile receives a different score. Based on the score, investors may decide on the premium points they expect over risk free alternative like US Treasury bonds.

Investors are able to buy and sell their positions at will. The price will be set based on bid and ask quotes. For example, $100 note which pays 7.0% might be traded down at $98 if the risk profile score of the underlying note goes down from 900 to 800 points. Alternatively, if the risk free alternatives rates decreased from 3% to 2%, a note paying 7% might be very attractive despite on all the risk and will command $102 per share.

To help Investors understand how Real Estate Notes can be expected to contribute to their portfolio return, IRESE collects historical performance of notes with a comparable credit grade and characteristics.

Understanding Estimated Loss

The loss rate is a key driver in the estimated return and is based on the historical performance of Real Estate Notes notes. The "estimated loss" represent key characteristics of the auction for which a bid is placed. The main characteristic is credit grade, load-to-value, debt-to-income and is supplemented by a few other factors.

To obtain the loss rate, IRESE reviews notes already made with these similar characteristics, projects a loss rate based on payment history to date, and assumes this listing will have similar performance.