Debt Buyer - Secondary Market

Secondary Market

Due to the varying size of debt buying organizations, not all organizations have the capital required to purchase large portfolios directly from the debt issuer. Historically, smaller debt buying firms would have to wait and purchase their debt accounts from a larger buyer after that larger buyer had already collected on the account.

Debt buying has historically taken place via the purchase and sale of whole portfolios consisting of a static group of accounts. Debt issuers usually prefer to sell their entire portfolio to a single debt buyer because the issuer is responsible for supplying the debt buyers with the documentation needed to prove the account in a court of law. This documentation known as "media" in the debt buying industry may include the original account application, monthly statements, affidavits of sale and charge-off statements. This information is necessary to prove in court that the debtor owes the money and that the debt buyer owns the account.

Most of the major banks that sell all or a portion of their charged-off assets sell their accounts to a small selection of pre-approved buyers who purchase using a vehicle known as a “Forward Flow Agreement”. A forward flow is an agreement between a debt buyer and debt seller to transact a fixed amount of debt over a fixed period of time for a predetermined price. For example a debt buyer and debt seller may enter an agreement to transact $20 million face value of debt each month for 12 months at a price of 7%.