Aren't they basically running collection agencies? I thought there is a whole industry that buys defaulting loans and then tries to get the borrowers to pay.
There has always been a brisk market for real estate paper ("notes"). This might be someone that lent on a second mortgage and now needs his cash back, so he enters the note market and takes a hefty discount to turn his stream of income into a lump sum. Or someone that just sold their house with owner financing, and wants to be free of the hassle of servicing the loan for the next fifteen years, so they sell on the open market. Supply and demand determine the prices, and the discounts are easily 40% off the net present value of that mortgage note's stream of income.