Garnet Capital Advisors Blog

Excerpt: Due to instability, possible unpaid fees, and the potential for future problems, re-performing loans pose a risk to lenders. Selling these loans can free up capital and decrease risk.

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Having non-performing loans (NPLs) on your books is a fact of life for lenders, but so is having some portion of loans that are re-performing (RPLs). Scratch and dent loans may be moving forward again with resumed payments, but they are still considered defective due to instability, some that involve unpaid fees, and the potential for future issues.  Even when a borrower decides to make good on their agreement, there are advantages to selling these RPLs.

There are advantages to selling your organization's RPL's.

The Post-Crisis RPL Market

During and after the 2008 financial crisis, a substantial number of delinquent loans were accumulated by the residential mortgage-based securities (RMBS) market. Many of these loans were on the path towards liquidation and foreclosure, but this gradually began to change. As programs were introduced to mitigate losses and modify loans, some of these previously-delinquent borrowers once again became current with their loans. As a result, these once NPLs were transformed into RPLs.

Bloomberg reports that the volume of RPL securitization was just $400 million in 2010. That volume had risen to $15.3 billion by the end of 2016, and $20 billion in RPLs were sold last year. In many cases, these loans have been modified to the point of making payments more affordable. Unfortunately, many of the new loans are also step loans, which raises the possibility of interest rate increases in the future and payment shocks for borrowers.

Current Trends of RPLs

Just because a loan is classified as an RPL, it still holds a great deal of risk. For example, Fannie Mae just sold more than $2.43 billion in RPLs, with the 11,000 loans divided into five risk pools. Risk pools may be geographically-focused, based on loan principal balance, or other factors such as a common loan servicer. 

Investors who buy these loans can choose to directly service them as well as package the loans for securitization, which allows them to pay higher prices. As the housing market continues to improve, there are still willing buyers who will pay a fair price for RPLs through a whole loan broker. The downside risks for investors of RPLs are less today than they were just after the last financial crisis, which makes this a good time for lenders to consider working with a loan sale advisory service on strategies to maximize their bottom line results.

A whole loan broker can help facilitate the sale of your RPLs to free up valuable capital.

An Experienced Loan Sale Advisor Can Explain the Advantages Gained & the Challenges Faced When Selling RPLs

Getting a non-performing or re-performing loan (NPL/RPL) off of your books might be the best choice for a lending institution that wants to free up available capital. This is an especially good move since it will eliminate servicing costs and improve your position so that you can begin buying and lending more in the future. 

Unfortunately, selling these loans can be a challenge since you must rely on accurate and actionable information and wait for potential buyers to complete their due diligence. One of the best ways to achieve your goals is to partner with loan sale advisor who can facilitate these deals and connect you with investors who will pay top dollar for your company's RPLs. Sign up for our newsletter to receive market updates and learn how Garnett Capital Advisor's services can help your business.