Buying Bad Debt: Tremendous Revenue Potential For Investors
Buying bad debt is growing significantly in this country. The main reason for this is a poor economy, along with growing unemployment, consumer debt and the credit defaults as a result of job layoffs.Buying debt portfolios are typically purchased at greatly reduced discount rates, usually for pennies on the dollar, and can potentially reap great returns. Pricing is based on how fresh the accounts are, and whether or not they've been placed with a collection agency before. Discounts are even better for accounts that have been placed with more than one collection agency.
Entities buying debt are usually larger companies, such as hedge fund investors, private equity firms; smaller companies and/or individuals, or sometimes even collection agencies or private debt collection law firms also buy debt.
They purchase these delinquent or charged-off debts from a creditor for a fraction of the face value of the debt. The debt buyer can then collect on its own (called "active debt buyers"), utilize the services of another collection agency (called "passive debt buyers"), repackage and resell portions of the purchased portfolio or any combination of these options.
Debt portfolios are typically comprised of closed credit cards, municipal debt, medical, or cash advance loans. Credit unions and banks often sell off their charged off auto and other loans. They sometimes sell off closed checking accounts (DDA).
The History of Buying Bad Debt
Buying bad debt started in The U.S. from the fallout of the S&L crisis of the 1980's. At this time, savings and loans were shutting down at a phenomenal rate, and the FDIC (Federal Deposit Insurance Corporation) took over the assets of these failing S&L's (also called thrifts) in order to guarantee the deposits of account holders.
When the FDIC, plus in the end the Resolution Trust Corporation (RTC) took control of the assets they had to locate companies, organizations also private investors eager about investing in debt, and also would be willing to buy the assets of shut down banks in addition to both performing and also non-performing (delinquent or charged-off) accounts.
The RTC conducted auctions all over the country, allowing various parties to bid on these mixed asset portfolios. Bidders weren't permitted to make evaluations of assets before bidding on them. Most buyers didn't know what they had purchased until after the auction.
The supply of these assets for the open public was the catalyst which started buying bad debt as an industry.
Entities buying debt are usually larger companies, such as hedge fund investors, private equity firms; smaller companies and/or individuals, or sometimes even collection agencies or private debt collection law firms also buy debt.
They purchase these delinquent or charged-off debts from a creditor for a fraction of the face value of the debt. The debt buyer can then collect on its own (called "active debt buyers"), utilize the services of another collection agency (called "passive debt buyers"), repackage and resell portions of the purchased portfolio or any combination of these options.
Debt portfolios are typically comprised of closed credit cards, municipal debt, medical, or cash advance loans. Credit unions and banks often sell off their charged off auto and other loans. They sometimes sell off closed checking accounts (DDA).
The History of Buying Bad Debt
Buying bad debt started in The U.S. from the fallout of the S&L crisis of the 1980's. At this time, savings and loans were shutting down at a phenomenal rate, and the FDIC (Federal Deposit Insurance Corporation) took over the assets of these failing S&L's (also called thrifts) in order to guarantee the deposits of account holders.
When the FDIC, plus in the end the Resolution Trust Corporation (RTC) took control of the assets they had to locate companies, organizations also private investors eager about investing in debt, and also would be willing to buy the assets of shut down banks in addition to both performing and also non-performing (delinquent or charged-off) accounts.
The RTC conducted auctions all over the country, allowing various parties to bid on these mixed asset portfolios. Bidders weren't permitted to make evaluations of assets before bidding on them. Most buyers didn't know what they had purchased until after the auction.
The supply of these assets for the open public was the catalyst which started buying bad debt as an industry.
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