Low-Value Loans Trading
Carrollton, TX-Steve Horne, president and founder of Wingspan Portfolio Advisors here, sees the nonperforming loan purchasing business as the key to resolving the huge inventory of nonperforming loans.
The specialty servicer notes that in today's market there is a greater preponderance of lower value loans that are trading more freely than classic nonperforming first-lien conventional mortgages. These are trading at the bottom end of the pricing spectrum.
"We are seeing the process beginning in terms of these very low value loans which do seem to be trading now, moving gradually up the credit spectrum over time as the bigger banks work out their economic challenges, and the protections put in place to facilitate these sales are worked out by the government," observes Mr. Horne.
"I think the mistake would be to try and just paper over the problem. Whether it was Japan in the '90s or the RTC in '80s, these things fester until they see the light of day."
Wingspan works with four investor groups. Each one has its own particular appetite, and Wingspan works with them as pools come up, helping to price and purchase the loans and, of course, the servicing.
"I would expect to see some first-lien loans in the market. It still tends to be a bid-ask spread differential from what the would-be seller is hoping to receive vs. what the would-be buyer is planning to purchase," he says.
"So, we're not seeing as many deals closed on that side right now. Plus, I think sellers are still trying to work through what it is they can possibly refinance. As time goes on, we'll see the loan sale activity move up the price and credit spectrum to higher value assets. For now, it's mostly in the very low value stuff already on the books at a very low price."
At Wingspan, the whole servicing operation revolves around loan resolution. The company works assigned queues, and each loan resolution consultant forms a one-on-one relationship with a particular nonperforming borrower. For any given loan resolution consultant, each person is working a queue of approximately 200 loans. The company talks to every borrower more than once a week.
"That borrower only has to tell their story one time, and the consultant is the one person whose job it is to help them get back up on their feet again financially, who is compensated based on their success doing that," said Mr. Horne.
"Also, something we do that's different is we don't limit the talk time of the loan resolution consultant. If the borrower wants to talk 45 minutes, we will gladly listen. A great amount of data is gathered before we even begin servicing the loan. It gives us the opportunity to establish authority that we understand the borrower's circumstances. We build trust with the borrower."
Once that relationship has been established with the borrower, Wingspan works to get them back into a paying status or to provide solutions that prevent foreclosure.
"We've taken the time to bring out the value of every loan. Our technology is cutting edge, but we've left room for the art that our skilled consultants can apply to establish these relationships and bonds of trust, to get the borrower back to cash flow status. We want to find a workout that fits their circumstances," he adds.
"It engages them psychologically, they've been involved in creating it. Borrowers feel they have a vested interest in the success of the plan going forward. With a typical loan mod, they may find it in the mailbox, which may or may not fit their circumstances."