Ask A Question  | Learn more about None

What is the expected return of nonperforming assets investment in the U.S.?

How can foreign investors find such opportunities?

  • Farazad Investments
    September 03, 2018

    Market size is large, and flow continues on a periodic basis. Right now, there is an estimate an NPL inventory of around $105 billion (not including RPLs) compared to estimates of $35 billion prior to the financial crisis (2000 to 2006). NPL securitizations represented roughly a quarter of total RMBS post-crisis issuance in 2016. Various sources of cash flow through: active management of borrowers focused on re-performance through modifications of borrower terms, deed in lieu of foreclosure, re-selling subportfolios, and ultimately foreclosure and sale of REO properties. For a securitization, where many of the soured loans are bundled into bonds, the yield can be up to 4 percent. For a direct control investment, the expected return is in the range of 20 percent. Foreign investment funds and asset management companies not established in the U.S. and interested in purchasing NPLs should be aware that the acquisition of credit claims could be considered an activity subject to regulation by the Fed and/or SEC, and if the investor chooses to foreclose also to the HUD. The prevailing method for the transfer of a non-performing loan portfolio is via assignment. It is also possible to sell the portfolio as a part of a commercial enterprise or through a spin-off into a separate SPV, the stakes and the shares of which are later transferred to the buyer. Another issue is related to the expenses and activities for servicing the portfolio, such as court and out-of-court fees, expenses for notifications and invitations, etc.