Buying Bad — Debt From Banks

Buying "bad debt" (distressed or non-performing debt) from banks involves purchasing loans that are in default for a fraction of their face value, often as little as cents on the dollar. Investors profit by either collecting more than the purchase price or foreclosing on the underlying collateral. Core Mechanisms of Debt Buying

: Buyers pay a low percentage of the Unpaid Principal Balance (UPB). For instance, a $100,000 loan might sell for $20,000. Where to Source Debt

: These entities buy large pools from banks and may "slice" them into smaller assets for individual investors.