NPN Market Pricing Feedback

[Dion DePaoli]

One of the most common questions when it comes to non-performing loans is rooted in pricing.  Due to the nature of loan sales it is sometimes difficult to get a feel for market pricing as sale prices are often not published.  However the GSE's and Ginnie Mae do publish their sale data so I figured I would share here for some reader insight.  

This sale data is from Fannie Mae on a pool of first lien NPNs published in Oct 2015 and set to close in December 2015.

The pool had about 7,000 loans totaling $1.24 billion in aggregate UPB, divided amongst three pools:

• Pool #1: 1,963 loans with an aggregate UPB of $418,837,669; average loan size $213,366; weighted average note rate 5.21%; average delinquency 52 months; weighted average BPO LTV of 108%
• Pool #1 winning bid was 72.36% of UPB at 64.74% BPO

• Pool #2: 3,823 loans with an aggregate UPB of $588,367,863; average loan size $153,902; weighted average note rate 5.32%; average delinquency 34 months; weighted average BPO LTV of 70%
• Pool #2 winning bid was 87.76% of UPB at 52.81% BPO

• Pool #3: 1,224 loans with an aggregate UPB of $235,320,739; average loan size $192,256; weighted average note rate 4.90%; average delinquency 36 months; weighted average BPO LTV of 135%
• Pool # 3 winning bid was 54.75% UPB at 68.80% BPO

The weighted average of the whole offering was $177,251 in UPB and 5.20% interest. The average delinquency of the loans was approximately 41 months with a weighted average BPO LTV of 95%. The aggregate trade value for the entire $1.24 billion in UPB was 76.47% of UPB at 80.23% BPO.

In general this pricing is tracking at the same level as what has traded through the year.  The pool with a dash of equity (pool 2 at 70% LTV) traded for a premium at 87.76% of UPB which came to 52.81% of BPO.  A good example to illustrate to folks that both the UPB and BPO levels matter in pricing talks and taking one or the other on their own sort of distorts the real market tolerance for risk in the asset class.  

Pools 1 and 3 which both traded in the mid to late sixty percentile (64.74% & 68.80% of BPO) has been the relative normal level in pricing over the last 12 months as last year's November sale also went off around an average price of 67% to 68% of BPO.  

I think it is valuable to share this information with up and coming note investors along with some of the more seasoned folks as this is a slice of the actual market.  I will also add that private loan investors or non-institutional loan investors are very much exposed to this pricing in the market and there is not two sets of pricing out there.  There is only one secondary market.  With thousands of loans in each of these pools the geographical footprint ranges across the board and includes judicial and non-judicial states.  In other words, these are not pools with high concentrations of loans in say Texas (non-judicial proceedings) which drives the pricing up due to shortened foreclosure timeline.  

Happy Investing.