Fannie NPL Sale and What It Means This Time Around

[Doug Smith]

This article in DS News caught my eye as a potential canary in a coal mine for a new wave of NPLs hitting the market. As I looked closer, however, these two pools are a far cry from what we saw in the late 2000s. We originatlly started this company to lend to real estate investors and to purchase Non-Performing Loans...primarily commercial loans...out of banks. We later started to purchase loans out of funds as well. At that time, we were buying at 35%-45% of the market value of the underlying collateral. Although not completely irrelevant, we've not focused on unpaid balances (UPB) like a lot of groups. These sales, however, struck me a bit. There were only 3565 loans sold, which is somewhat of a drop in the bucket, but the price is shocking me a bit. The loans in the pools sold are averaging over 3 years delinquent, but the winning bidder paid mid-to-high 90%s of UPB for the loans. Now, we always focused on a % of the collateral and only looked at UPB to make sure we weren't under water, but for loans that delinquent, that's a very high number. To put that into perspective, we made the decision to back away from NPLs in June of 2014 when Lone Star paid over $3B for all 16 HUD traunches that were sold that month. They paid over 77% of the market value of the collateral. I couldn't make the math make sense for us at that level. In the immediate aftermath of the last crash, we were able to pick up great deals to fill the portfolios. With metrics like this, It makes me wonder what were going to see this go around and if the numbers will make sense at all. I would be interested to hear the opinion of others in the space. Thanks, Doug