All Quiet on the Investment Front?
Los Angeles-Despite government intervention efforts "there is not much going on in the market right now," says Dennis G. Stowe, president and CEO of Residential Credit Solutions Inc. here.
Currently, while the Troubled Asset Relief Program remains open to debate, many portfolios are just put on hold, he said.
"A lot of sellers have been waiting to see what the government programs will look like and what they will do for them and their portfolio. The buyers on the other hand are also waiting to see what the government action will look like and the implications it would have on portfolio performance after the fact."
Furthermore, the portfolios that have been shown in the market are under the scrutiny of cautious investors.
"I believe most investors are very cautious right now because of all the uncertainties at the state and local level have not been eliminated," he explained.
Foreclosure timelines, moratoriums and the bankruptcy cramdown, he added, fuel uncertainty about the value of assets that an investor may be considering for purchase.
While somehow optimistic about the new modification plan announced in March, which "does provide some certainty in how the loans are going to be approached," he recognizes that despite the goodwill, overall the government intervention has generated an unintended paralyzing effect among investors.
"Everyone is waiting to see if there is some sort of asset purchase from the government."
The country has experienced similar economic hardships before, and a proven solution has been that of "taking bad assets off of banks' balance sheets, much like the RTC did in the early 1990s." That model has proven to work. "At some point," he said, "and we don't know when," banks will take that route and get those loans off their balance sheets so they can generate liquidity. Yet as of now, he said, "it is unclear what the government's direction is going to be."
In 2008, RCS looked at $1 billion to $1.5 billion of nonperforming loans per month last year, or a total of anywhere from $12 billion to $15 billion. Of the total volume 60% never traded, a company spokesperson said. And the reason why the company did not win any of the remaining 40% bids was because its investing approach throughout the year was cautious and not aggressive. The volume has decreased to about $15 million to $100 million a month, he said.
Generally banks remain cautious. At least in 2008 while investors were looking at bids in the majority of cases properties were not selling often because the buyers were bidding too low, or the offer spread was too wide.
RCS is open to bidding for assets today, yet the bids will reflect the aforementioned uncertainties. The TARP discussion started in September 2008 - so now the industry still is in the implementation phase.
Going forward, Mr. Stowe said banks and servicers have to and they are changing the way they work.
One way RCS is doing that is by building a third-party business.
Established in January of 2007 Residential Credit Solutions is a fully licensed, integrated mortgage investment and servicing company focused on purchasing, managing and servicing credit sensitive and servicing-intensive residential mortgage loans. RCS maintains it was "specifically in anticipation of this mortgage crisis by an experienced institutional equity investment group" with backing from Och-Ziff and private equity firm, Equifin. Currently it services approximately 7,000 loans with a principal value of approximately $1 billion.