Lessons For Selling Non-Performing-Loans

We hope you had a very pleasant and relaxing summer. The Sein team spent the past few months working on a very difficult, but exciting transaction. Though we were disappointed the transaction never closed, we wanted to reflect on some of what we learned. We would like to thank all the folks that worked with us on the transaction, Kofi Obeng at AOC Securities, Michael Tiraboschi at FNBA, and Michael Sonnenfeld at WMB Asset Management and the other bidders who participated in the bidding process.

THE STORY

In March we were signed on as sole agent to collapse four legacy RMBS transactions to monetize the residual/equity by the Master Servicer (from here on our client) with the right to call the transactions. We spent the first four months confirming to the servicers, EverBank and Ocwen the rights of our client under both the Pooling and Servicer Agreement and the Subservicing Agreements with both servicers.

Finally, in June we were given access to the closing and loan documents that would be needed during the due diligence process. Based on the pool summary tape we marketed the pool as a seasoned Alt-A pool. We entered into exclusive separate LOIs with a performing and non-performing buyer for the entire pool at a blended price of approximately 97 cents on the dollar. During due diligence of the loan files we quickly discovered that the files where incomplete and disorganized. Further, we realized that 70% of the pool was either HARP modifications or Chapter 7 discharges.

Based on the auditing, we re-classified the pool as a scratch-and-dent/non-performing loan (NPL) pool and put it out for bid a second time. We received 5 bids in the range of 82-86 cents on the dollar. The seller, our client, summarily dismissed all bids and withdrew the transaction.

PRICING SUMMARY

Our team blamed ourselves believing we did not get best pricing for the client. That is until we came across a blog post from Fannie Mae detailing pricing on their most recent NPL sale. Pool #2 from the Fannie NPL sale is closer to the characteristics of the pool we put out for bid. Except, the average LTV on our pool was 55% versus 68% on the Fannie Mae pool. However, unlike the Fannie Mae pool our pool suffered from geographic concentration in NY, a judicial state. The 75% NY state concentration and shabby documentation implies that our pool would trade at a slightly higher discount.

LEARNINGS

  1. Provide regular updates on factors that may adversely affect pricing and make sure the client updates their expectations and mark.
  2. Before putting out a pool for bid, audit the loan documents and ensure that the information provided meets all RESPA Regulation X rules.

We’ll now look forward to the long Labor Day weekend with an eye to coming to market with similar transactions in the fall.