Kondaur Capital Corp., one of the better-known names in the nonperforming loan space, recently lopped off almost 40% of its staff, after complaining about a lack of available product to buy—which raises an obvious question: There aren't enough delinquent mortgages out there?
Company chairman Jon Daurio told National Mortgage News that sellers of NPLs (banks and investment banking firms) "are not even putting their bad loans out to market."
With an estimated $850 billion in delinquent loans in America, Daurio's statement, on the surface, might seem hard to believe. But he insisted that it's not the asking price of these loans—it's a lack of product.
Meanwhile, recent interviews conducted by NMN suggest that there is product to purchase but the "bid/ask" ratio has gotten out of whack again.
One loan trader estimated that of all the NPL deals offered over the past two years, just 7% ever closed. "Seven out of 100," he said. "It's the bid/ask."
The bid/ask, as the name implies, refers to the difference between what an investor is willing to pay compared to the reserve price the seller has in mind. (In the summer and fall of last year the bid/ask narrowed and more deals were getting done.)
According to Daurio, some bank sellers have underreserved for their bad loans and if forced to sell them at current market values they'd have to take additional losses. "They won't mark [NPLs] to market," he said. (The Kondaur executive blames accounting rules for allowing banks to warehouse NPLs instead of taking true writedowns on them.)
Meanwhile, Kondaur's inventory of loans has fallen to 3,000, which the firm said is a recent "low point for us." And with a lack of product to work on, Daurio said he was forced to cut staff.
In total, the Orange, Calif.-based investor said it cut 155 workers. Daurio said that prior to the layoff, the privately held firm had negative cash flow. After the staff reduction, it will be "cash flow positive," he said. (The layoffs take effect April 18.)
The executive said that despite the layoffs, his company is still growing in other areas, citing its recent launch of DKR Collateral Dynamics, which offers due diligence reviews to loan investors.
