When Is A Re-Performing Note A Performing Note?

Question

We are marketing some Re-Performing 2nd lien notes for one of our funds we buy from, and I consider any time a note defaults and starts paying as a Re-performing note. They have 18 months of "seasoning" and they say its performing after 6 months, and they use 12 months to call performing.

While opinions are like you know what's, I would like to ask the community what they think.

Is a note that defaulted, then has been repaying for 18 months a Performing note or a Re-Performing note?

Roma Korenyuk · Answer

@Christopher Winkler, I'm not too familiar with 2nds, but when dealing with 1st position liens most sellers would consider 12-18mo of on-time payments as performing and will market it as performing.A re-performing note would be a note seasoned for less than 12 on-time payments.A under-performing note would anything that has missing or irregular payments.

Christopher Winkler · Answer

@Dion DePaoli My thoughts exactly, once it defaults, its never going to be a pristine, performing note. It has that scar that will not go away.

Dion DePaoli · Answer

@Christopher WinklerThe standard market definition, away from street level jargon, is any loan which was once in default (90+ DPD) and was reinstated is "Re-performing". Any loan which is not consistently current (<30 DPD) annually is considered "Sub-performing". If at some point in the loan's life it was in default than by simple definition it will forever be re-performing. Whether it stays current to maturity or payoff or not. The length of time the loan has been current since default is not a defining characteristic outside of any given investors desire to bid accordingly. It seems commonly in conversation we attempt to use PL, RPL or SPL as a substitute to "current, delinquent or default" which are the true MBA (Mortgage Banker Association) definitions of loan performance. In that manner, you can simply look to your servicing fee matrix and see how they define it in accordance with how they charge to service it. Current = 0 to 29 DPD; Delinquent = 30 to 89 DPD; Default = 90+ DPD.The concept of defining a set period of months past reinstatement came into view years ago when the market was flush with modifications. The issue was that investors seeking consistent cash flowing loans were being solicited on loans recently modified often times with no payments made on the modification. Since coming out of a modification the loan by class was current and it was marketed as such. Obviously the desire was to achieve premium pricing on those loans from a sale perspective while the counter argument, based on the events of the time such as high redefault rates, opposed to those loans being discussed as "current". As such, seasoning was born as a means to vet out those loans. Often times to deliver additional discounts on newly modified loans which arguably had a high chance of redefault. To that end, I would suggest not overly bothering yourself with a commonly understood or agreed to definition. What I call a performing loan, re-performing loan or sub-performing loan is of little actual consequence to your decision to execute on my bid. My bid either works for you or it doesn't. Why I need 10% on loan A versus 12% on loan B will always be an internal investor/bidder discretion.

Christopher Winkler · Answer

Great, thanks, looks like the consensious is its performing now. Thank you!

Demjan Van Der Kach · Answer

happy to find this thread. I just got many questions on this issue while being new to the topic. I guess this information is hard to find in a book...

Christopher Winkler · Answer

I would think it would matter John, as it was damaged goods at one time for any number of reasons. Though they have all agreed to repay the loan, so it went from Non-Performing to either Re-Performing or Performing. You make a good point and we have one vote for calling them Performing!Anyone else care to chime in?

John Thedford · Answer

I don't recall hearing the term re-performing. Might ask some lenders their thoughts. Does this matter to a buyer if once in default and now performing? I understand seasoning as well. Even 12 months of seasoning with no hiccups sounds OK but to those that buy notes on a regular basis and deal with no pay/delinquents they may take a harsher stance. Speaking of same, probably going to hire an attorney later this week if one of my borrowers doesn't get funds to me by the 15th! LOVE THIS BUSINESS!