NPN Loan Sale Market Price

[Dion DePaoli]

Here is a nice article for newbie investors to read and understand about the REALITY of NPN loan sale pricing. The idea that loans trade for massively steep discounts is not completely true. To be clear, these are FHA NPN loans, so these types of loans may carry some insurance on the principal, that is not for the entire balance mind you. A previous sale to these pools was closed at 53.4% of UPB where FHA insurance was no longer in effect. We can only assume the insurance is still active in this trade, but we are not certain. In addition, we can be sure of the pools overall level of insurance and many concepts apply to what can be claimed and what the reimbursement is from FHA. The key layman idea, is it is not a full repayment of the loan and the loan must be disposition for a claim to be turned in generally, so it works similar to insurance on other things to that extent.

It is also important to note the other restrictions that come with the purchase, which is no progress in foreclosure for at least 6 months. Forcing the Investor and Servicer to try and find alternatives to foreclosure.

Since may folks have been what prices look like, I have inserted price translations based on the information given. Most of these pools have on average a 110%+ LTV and have trade for 60.0% of UPB (unpaid principal balance) or 66% of BPO (Broker Price Opinion or FMV). Other portfolio characteristics will have affected pricing which will include geography (judicial and non-judicial foreclosure along with eviction time and costs), some degree of foreclosure seasoning, previous servicing strategies, etc. So we can recognize those ideas in absence as influences of pricing, however this is also a sale for 8,000+ loans. This is good market insight and do not be so quick to shrug off the price indication it provides.

Hope this clears up misconceptions and manages some expectations and market price, this is reality contrary to what you may have thought or been told.

ARTICLE:

The Federal Housing Administration sold over 8,000 nonperforming loans at an Oct. 30 sale and recovered 60% of the unpaid principal balance of the loans.

This is a slightly better than the previous loan sale in June, when the winning bidders paid on average 53% of the UPB.

The official results show that FHA rejected bids on two of the 11 loan pools at the Oct. 30 sale. The two pools had extremely low broker price opinions relative to the unpaid principal balance of the loans.

Pool 103 with 1,700 loans had a UPB of $330 million and a total BPO of $196 million. [LTV = 168% - did not trade at 60%] FHA might have been testing the market with this offering and the bids did not meet its minimum requirements.

DLJ Mortgage Capital Inc. successfully bid for the 105 and 106 pools. The 105 pool had a UPB of $148 million and a BPO of $133 million. [60% UPB = $88.8M or 66.67% of BPO, the LTV = 111%]

The Credit Suisse subsidiary offered to pay 61.5% of the UPB or 68.5% of the BPO for the 105 pool. [LTV +/- 112%]

Overall, 17 companies bid for 10,600 FHA nonperforming loans on Oct. 30 and the agency sold 8,172 loans. Servicers that put those FHA loans up for sale have generally exhausted all loss mitigation options.

However, the successful bidders cannot foreclose on these loans for six months. This restriction is designed to give the new servicer a chance to restructure the loan and keep the borrower in their home.