The nonperforming residential mortgage market is hot, and may be getting a little too hot, with bidding extremely competitive, loan sales advisors say.

"It's a pretty overheated market," William F. Looney III, president of U.S. loan sales at Debt Exchange Inc., told attendees at SourceMedia's Distressed Residential Mortgage Summit in New York Thursday.

The ongoing rise in prices has gotten to the point where some investors are questioning how much upside is left in these assets, but those questions aren't stopping trades from getting done.

"The bid-ask is not a problem," he said.

Because investors have a lot of money they want to put to work and assets are in short supply, "buyers are finding a reason to increase their bid," said Jeff Freud, founder and president of

As supply has thinned, investors have sought more problematic assets in their search for fatter yields. As a result, sellers facing heightened regulatory scrutiny are being more selective in agreeing to deals, and both sides are focusing more on concerns like data integrity, said Andrew Stumm, a senior vice president at Garnet Capital Advisors LLC.

"Everybody will need to have a certain level of confidence in the data transfer," he said. "A lot of the stuff that's still trading was a mess at origination."

Second liens are one of the niches investors are looking into in an effort to find better opportunities, he said.

"There's still a big, big ask in that space," said Stumm. Bids have ranged from 28 cents on the dollar to 80 cents over time for second liens.

While second-lien investment "has legs," sizing up the assets' value can be a challenge due to continuing difficulties getting information about things like related first liens, said Looney. These can have a lot of bearing on the assets' performance.

Panelists had mixed reactions to the question of whether there was any opportunity in early buyouts of distressed loans from securitized Ginnie Mae pools. There was also skepticism of investment opportunities in short-term bridge financing for distressed assets, despite some interest in that area.

"The prepayment risk is significant," said Michael Goldring, a principal at Avison Young.

Conversion of nonperforming mortgages to rental homes is another opportunity some in the market are pursuing, Goldring said.

"It's one of the courses of action" investors are using today when they work out their nonperforming loans, he said.

Opportunities in any niche are somewhat limited because it's tough to avoid competition today, panelists agreed.

"Every market is competitive," Looney said.

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