DS News

46 SALE OF DELINQUENT WHOLE LOANS CREATING HOT MARKET FOR INVESTORS In recent months, institutional investors seem to prefer buying non-performing loans instead of more solvent ones, according to David LeBlanc, managing director of capital markets at DebtX. His company is the world's largest online loan sale advisor for buyers and sellers of commercial, consumer, and specialty finance debt. LeBlanc says that this action is thought to be caused by the decreasing margins available in real estate acquisitions. ese types of loan sales are expected to increase as a result of new regulations that are forcing depository institu- tions to shed their bad loans to avoid increased holding costs and reserves. ere are still 2.2 million loans delinquent or in foreclosure for 90 days or more, according to reliable market reports. "Although the whole loan market has been variable in the last few years, the residential whole loan market last year was the busiest in recent memory," Leblanc said. "I think this year is probably going to be even busier for private market activity." He explains that the market can be charac- terized by three things: liquidity, velocity, and pricing. In addition, he says that financing for participants is easier than it has been since the housing crisis. Other factors influencing the increased sales include increased prices, increased access to capital, increased access to leverage, and increased transparency. Leblanc says that all of these factors result in stimulating transaction volume. He explains there is more transparency in the market today than there has ever been, particularly in the residential sector. "It was not so long ago when transactions were so few and far between, if there was a port- folio on the market, you did not really have a lot of clarity regarding the way that portfolio would clear, but that is not the case today because there is very good data available to market partici- pants," LeBlanc explained. He believes that this additional transparency gives market players more assurance in the market and therefore more confidence to buy. LeBlanc estimates that the size of the resi- dential market is now somewhere between $40 billion and $50 billion. e commercial market is somewhat less, as it probably peaked a couple of years ago, he notes. "I think the largest seller of residential whole loans is the FHA, and then probably the top 10 banks. ose two categories are by far the largest," he said. Although his company handles a lot of transactions with smaller banks, he says that in general DebtX works with large financial institutions in the purchase of large transactions, mostly on the selling side. In addition, it also works with smaller organizations on the buying side. Average residential sales handled by DebtX are in the $500 million-plus range and are for the most part sales from institution to institu- tion. However, the transactions DebtX is most actively involved in are in the $50 million range. ese are secondary trades with a large fund or a large bank on one side that is selling off a small portion of its portfolio to a smaller fund. It used to be that many investors would buy a non-performing loan and then roll it. Now, however, LeBlanc says it's too risky to sell a loan to someone who just wants the real estate and does not want to work with the borrower. "I think that many times the strategy is to convert a non-performing loan into a performing loan, and frankly we see that all the time because one of the resells we do for larger institutions are loans that two years ago were non-performing," he said. "ey are now performing, and I can sell them at a 25-point profit." He also said that the most important characteristic investors look for today is collateral value and "loans today are trading closer to collateral value than we have seen since the crisis." Presently, the most popular product sold through DebtX is "anything with cash flow followed by anything that is a quality asset in a recovering market," LeBlanc said. LeBlanc thinks 2014 will continue to be a sellers' market and that buyers are going to see more and more products. "You kind of get concerned whether or not the demand will be there," he said, "but we have not seen anything close to satiating the market for at least the last 18 months." His prediction is that there will be a year or two of a continued sellers' market consisting of large investments, and then slowly but surely, the definition of large will begin to shrink. "So, if large today is a billion, next year, it may be $500 million, and a year after that, it may be $250 million, and so on," he said. info@NAWRB.com 949.559.9800 www.NAWRB.com GET CERTIFIED... by the only 3rd party Women-Owned Business certifier specific to the housing economy. You'll appreciate the You'll appreciate the benefits of certification. BECOME A MEMBER... • Access our resources for business development • Learn about new tools to grow your business • Network with and learn from from Industry Leaders, Media Partners, and Govern- ment Entities • Receive exposure & promotion through our communication platforms • Join a local chapter advocating • Join a local chapter advocating women and Women-Owned CONNECT. ENGAGE. SUPPORT. GROW. Join our community of Women Housing Economy Leaders

• Cover