January 30, 2013
By Amy Wolff Sorter GlobeSt.| Oklahoma City
GlobeSt.com caught up with Bliss Morris, FFN's founder and CEO to ask her what the loan sales industry might look like in the coming year.
GlobeSt.com: Can you tell me a little about the NOVA Bank loan package you're bringing to market?
Bliss Morris: It's a mix, as you'd expect; most banking institutions have a mix in their loan portfolios. This has commercial real estate loans, residential loans, C&I loans (commercial and industrial), consumer types of loans that would be referred to as home equity loans. There's also loan participation of about $20 million; what's unique about those types of loans is they involve other FDIC-insured banks.
The key dates to know; we announced the sale recently, actual investor due diligence will be available between Feb. 4 and March 5. Bids are due on March 5, and once they're awarded by FDIC, closing and transfer of those loans to the winning bidders will take place March 21.
GlobeSt.com: What types of bidders do you think will turn out for this?
Morris: On the participations, those'd be other FDIC banking institutions. For the rest of portfolio, I'd on the performing loans – not all are distressed – we'd see other banking institutions interested in them. Maybe those having a more difficult time growing their portfolio organically within their communities might take a look at those performing loans. For the loans that are non-performing, there are a number of companies across the nation that participate in these types of sales. They buy the non-performing loans for their portfolios and work them out over time. Some of them purchase in certain geographic areas, some purchase on a national basis, but they do have to be vetted by us, in accordance with the procedures and processes that the FDIC has us follow.
GlobeSt.com: Speaking of which, congratulations for the new agreement with the FDIC. How active do you think that organization will be this year in bringing loans to market?
Morris: Well, that really depends on number of bank failures. It depends on whether the acquiring institution buying a bank that is otherwise going to fail is willing to enter into a loss-share agreement with the FDIC. If they don't, those loans will find their way into marketing/sales structure.
We really don't know fore sure how many banks will fail. Obviously fewer failed last year than the year before. But all of that depends on how well the economy performs. I wouldn't expect this year that we'd have a lot more bank failures we had last year.
But it's difficult to predict how many loans will come from the FDIC. I think much of the activity will come out of the community banks.
GlobeSt.com: Why is that?
Morris: A lot of the ones engaging with us to sell loans are the criticized loans on their books, and they need to clean their portfolios. From a capital standpoint and reserve standpoint, they might not have been able to do that last year or the year before.
What we're seeing with a lot of these banks is when they have their review by regulators, in certain circumstances, the regulators are finding loans that are paying as agreed, but the collateral value is no longer supportive of loan. That becomes a criticized asset and it's calculated in banks' totals. Oftentimes loans becomes criticized and end up in the non-performing bucket because the collateral value has decreased.
Also, a lot of smaller banks are getting pressure to reduce the percentage of non-performing loans as a total to their loan portfolio. Some of them have to exercise a sale of those loans to do that quickly – they can't hold them hoping they'll reduce two quarters down the road. A disposition via a competitive sale where they can maximize value and reduce non-performing loans can be successful for these banks.
GlobeSt.com: What types of loans?
Morris: There is still an enormous amount of distressed residential home loans on not only the books of banks across the country, but also in the portfolios of government-sponsored enterprises; Fannie and Freddie. There has to be a market clearing in terms of that type of an asset, in which you have a homeowner with a residential loan on a bank's books, yet the collateral is no longer worth what it was when originated. I'd really hope that in the next 18 to 20 months we'd see those portfolios being sold.
GlobeSt.com: Why are we still seeing these loans on banks books?
Morris: Part of it has been a situation in which some of the institutions were hoping values would turn around more quickly than they had. Another thing that's occurred in last few years is that modifications extended to homeowners to rehab their loans have worked in some cases, but unfortunately not in others, and those loans went non-performing once again. All those activities take time to play out.
GlobeSt.com: What about on the commercial real estate side?
Morris: On the commercial real estate side, banks have been more active in terms of selling non-performing if they're in a capital position to do so. That's why we'll likely see more activity with some fo the smaller banks. The larger institutions were more active in selling loans early on in cycle, where community banks were slower to do so.