Trends in Note Pricing–the “Insider’s” View

Trends at the Top: The Insider’s View

I wanted to share with you some insight from an Insider who’s a loan sale advisor. One of the “quiet types” who’s happy to work inside larger trades. Here’s a summary of what he’s seeing in the market at the upper levels. Trickle-down being what it is, I wanted to let you know what’s happening at the top …

• there are a smaller number of what he calls “public market” packages – open to bidding and publicly announced through loan sale advisors
• “private market packages” are selling aggressively, and in greater numbers
• prices on these private packages are coming down slightly from the beginning of the year – non-performing loans (90+ del) are trading in the mid 40s; sub-performing loans are trading in the low-to-mid 40s “although lower doc types in this category settle lower” (e.g. no doc, low-doc loans trade at a lower price); and pre-REO’s (e.g. late-stage foreclosure) are trading in the high 40s – they’re pricing higher because it takes less time to get access to the underlying collateral
• The fact that sub-performing is trading at a higher discount to value than non-performing indicates that the news about re-defaults is keeping expectations down on whether sub-performers can get current (see: this revealing study – 30-45% redefault, though some reports claim the redefault rate is as high as 58% within a year)
• More sellers are selling loans and justifying them as a “forward REO sale”. And they’re engaging in smaller sales because ”the only way to get an idea of price on a large portfolio of loans, is to sell a small pool of loans”. Further, the insider points out that another reason for steady sales volume is due to “management periodically having to prove that ’some’ liquidity exists.”

The ARM’s are coming – the ARM’s are coming!

One other trend that’s growing is that “strategic default” – when a borrower walks away from a home with a perfect credit score – e.g. you see the following on their payhistory: 0, 0, 0, 0, 0, 0, 30, 60, 90, 120, 150 …. where they go from current and then drop off a cliff – is affecting prices. Our Insider notes that loans with one or two 30-day lates are now pricing in the 90+ delinquent range – showing “at a minimum … a lack of confidence in short-term home price appreciation (or stability). At worst, it indicates a growing realization that there are no viable modification strategies in the market place.”

2nds are trading actively

Finally, it looks like sellers are picking up the pace on selling pools of 2nds. A colleague of mine closed on a $675M package, and performing appears to be trading in the 7-16 cent range (depending on CLTV) and non-performing is still sub 1% of loan balance.

Any sign of buyers raising price expectation? Not according to the Insider: “The reality is that with continued rising unemployment, and declining home prices; there’s no reason to change a buyer’s draconian loan pricing model.  Further, with 88% of all the loans in America “current”, there’s no real rationale for a Bank seller to hit a low-ball bid either…

The Gap continues….

Dean

Leave a comment below and let me know what you think–and what you’re seeing out there…