The nation’s megabanks are continuing to sit on their nonperforming residential loans, although some are currently out in the market with mid-sized packages.
According to investors, Wells Fargo & Co. recently auctioned off $200 million in nonperforming loans (NPLs) with Citigroup hitting the market with a $99 million package. Both banks declined to discuss their deals.
Late last year there was a flurry of auctions by a handful of large sellers but it’s unclear how much in product actually changed hands. As a general policy, many bank sellers will not discuss their offerings or the bids.
To date, the NPL market has turned out be a bust for investors. Several private equity and investment funds grubstaked start-ups to buy and workout troubled mortgages but few have reaped much reward.
Recently, Arch Bay Capital, an NPL investor based in Irvine, Calif., fired its top management team and is in the process of finding a new servicer, industry sources told ASR sister publication National Mortgage News.
A year ago Kondaur Capital, another NPL firm, fired its CEO Jon Daurio after its backers expressed dismay at the returns the company was earning.
Tim Rood, a partner and managing director of The Collingwood Group, said the “bid/ask” on deals remains too wide.
“It’s the same issue we’ve had for four or five years,” he said. “Also, assets are likely marked to market at a value north of what the bank would get if it sold to another investor. Therefore, it's actually cheaper from a Tier 1 capital perspective to sit tight.”
Rood noted that, “Success stories of investors in nonperforming whole loan transactions have been few and far between. The buy-and-hold investors that won transactions at the onset of the financial crisis have not fared well overall.”
Sources told NMN that Arch Bay, in particular, has done poorly with a $600 million NPL package it bought from Wells Fargo.
To date, Arch Bay has purchased roughly $1 billion in nonperforming assets, sources said. At deadline the company had not returned telephone calls about the matter