Banks were initially slow to sell nonperforming loans in the wake of the downturn, but the release of these assets has picked up since then, and a specialty servicer serving private money buyers says the secondary market for NPLs is becoming more active.
“It was really a frustrating, stalled market” at the outset, but there has been a steady increase in the availability of NPLs since 2012, and now “everyone…expects it to increase even further,” says Gordon Albrecht, executive vice president and chief strategy officer of private-money specialty servicer FCI Lender Services, Anaheim Hills, Calif.
Some cite signs of economic and housing improvement in what they say is an increasing amount of discount mortgage asset activity, while others say it is a simple matter of supply and demand.
Albrecht says rising home prices have got “nothing to do with that.” He says banks have simply started to do well enough that, when they are able to record enough in the way of profit, “they are able to take the markdown on the books.
“It’s just that the supply is being released,” he says, noting that—on the other end of the trade—“it’s the private money that’s grabbing this stuff.”
And there is enough to go around for a while. Albrecht thinks shadow inventory is going to take “far longer than anybody admits” to work out of the system. He says he has predicted for some time it will last until at least 2016, and he is sticking with that prediction.
“There’s a huge backlog,” he says, estimating that there are about three to four years’ worth of nonperforming loans out there in this market, which is comprised primarily of single-family assets that were institutionally originated but have since gone bad.
Accounting and regulatory issues related to the assets “still has the pipeline plugged” to some extent, Albrecht says. And when people talk about needing as many as 15 years to work the pipeline out in the particularly challenging New York market, for example, “that is for real,” he says. “The backlog is that bad.”
But it is moving, Albrecht says. “The banks are actually comfortable now giving money to hard-money lenders and NPL buyers and that hasn’t happened since ’06,” he says.
“We see the [single-family] NPL market has been increasing substantially, and what’s interesting is the private money has moved into the 'soft money’ market,” says Albrecht, referring to borrowers with relatively high Fair Isaac & Co. credit scores around 640 who want to take out multifamily or commercial loans $200,000 to $5 million in size but cannot get them readily from traditional sources due to the market’s tight institutional underwriting standards. “Private money’s come into that market,” Albrecht says. “They can have their loan funded in 7-10 days. Try doing that with a bank.”
