Can Nonprofits Tap Into the $17.5 billion Market in Distressed Mortgages?

The sale of distressed mortgages is far less publicized than talk of the market for foreclosed properties. But these loans are being actively traded—in 2011 this activity included 149,000 loans which translates to roughly $26 billion in trades.
May 27, 2012, 9am PDT | bstanley
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Strict non-disclosure agreements require that participants keep the sales of these loans largely private, but there are opportunities for nonprofit organizations to get into the game, which could have wide ranging effects on their work to stabilize neighborhoods, writes George Ostendorf. Nonperforming loans (NPLs) that are 30-days or longer behind in payment are sold in pools at 50-65% of current market value. Nonprofit investors can team with for-profit partners for a mutually beneficial relationship:

"For nonprofit investors that are able to raise long-dated, patient money to enter the NPL space, there could be myriad opportunities to partner with for-profit investors who may, for example, wish to resell portions of their pools that are from judicial states or those that could benefit from time to repair credit," observes Ostendorf.

"For-profit partners could also offer specific forms of expertise. The pricing of mortgage loans, acquisition due diligence, legal compliance pertaining to mortgage sales, and the servicing of mortgage loans all require specialized knowledge and analytical abilities. Organizations seeking to enter the distressed loan market that do not have those abilities in-house would be wise to partner, or enter into fee-for-services agreements, with those who do."

Thanks to Brittany Stanley

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Published on Friday, May 25, 2012 in Shelterforce Magazine
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