Troubled HE Market Still Has a Pulse
Washington-Given the decimated housing market, chances are it would be near impossible to sell a delinquent second lien, but investors are still bidding on pools for one key reason: possible profit on "release fees."
If the holder of a first lien wants to foreclose or consolidate the mortgagor's debts to complete a loan modification, the company needs a release signed by the owner of the second.
"Sometimes the first-lien holder might pay as much as $5,000 to get that release," explained Rudy Orman, head of sales and trading for Marathon Asset Management of Tampa, Fla. Other investors say the release fee could be as little as $2,000.
"It all depends on the circumstances," said one West Coast-based scratch and dent buyer.
Nonetheless, there appears to be an active secondary market for nonperforming seconds - even if the buyers are unwilling to pay more than a few pennies on the dollar.
Shawn Moonan, an investor in seconds, called this newspaper looking for a list of second-lien holders but admitted, "I don't want to pay anything for them." He declined to answer more questions about his investment strategy.
One investment banker who sells portfolios of nonperforming seconds estimated that there are at least 15 active bidders in this niche market today.
"There's still a market for this stuff," he said, requesting his name not be used.
The investment banker declined to discuss prices but bidders have said current prices on nonperforming seconds range from one cents on the dollar to four cents.
"One investor I know just paid three-quarters of a penny," said Mr. Orman, a former investment banker at Goldman Sachs. "But many are trying to get that release fee."
Sammy Ahdoot of National Mortgage Buyers Corp. in Great Neck, N.Y., said he's in the market to buy as well. "I'll buy first and second liens." Mr. Ahdoot said he's been in the business of buying nonperforming loans for 20 years. When asked how much he's willing to pay today he said, "Five to 50 cents on the dollar."