The Second Annual Buying and Selling Distressed Mortgage Portfolios Forum

The Second Annual Buying and Selling Distressed Mortgage Portfolios Forum

New York City, June 2011
Quixote Ventures traveled east in June to attend The Second Annual Buying And Selling Distressed Mortgage Portfolios Forum sponsored by the National Mortgage News at the Roosevelt Hotel in New York City. We took advantage of our time on the east coast to meet with the major hedge funds, investors, servicers, and advisors to the distressed debt industry.

FDIC representatives, economists, consultants, hedge fund managers, investors, loan servicers and others in support roles for the residential and commercial mortgage industry delivered presentations.  The general consensus is that the overwhelming load of underperforming debt that exists today is for the most part still not being released to the open market.  The banks and institutions controlling these loans simply cannot afford to sustain the losses that exist if these assets were “marked to market” and sold at todays prices.

This forum was well attended and larger than last year with the noticeable absence of several major hedge funds designed specifically to buy these types of defaulted loans. These hedge funds have had a challenging year due to the lack of product and lack of good pricing and many have made significant cuts in their operations or have disappeared completelyMany felt an overall sense of investor frustration.  The good news might be that the representatives from the FDIC assured the forum that although less than 10 percent of available assets for sale were actually sold last year, they seem to understand that this must change moving forward to deleverage the governments currently over leveraged position.

Pamela Farwig, Deputy Director of the FDIC presented on the process of bank closings, what happens to the distressed mortgages obtained from these closings, and how you can become a qualified bidder and partner with the FDIC to participate in these opportunities.  Her statistics show that we have 348 FDIC bank failures to date with over $636 billion in total assets under FDIC control.

Jay Brinkman, PHD and chief economist of the Mortgage Bankers Association discussed the issue of securitization of mortgage backed securities and questioned whether government support is really needed and how to best avoid the mistakes made in the past with Fannie Mae and Freddie Mac and of limiting the risk with tax payer dollars.

Laurie Goodman, Senior Managing Director at Amherst Securities Group discussed the issues of “Robo Gate”, Loan modifications, short sales, and foreclosures impact on distressed debt investing – covering issues such as the high “redefault” rates on loan modifications and trends moving forward.

Many additional expert panels in related fields gave their opinions of the state of the current residential and commercial debt markets.

What do they think of the market and the possibilities for the future?

Banks and institutions are holding large inventories and the pricing of real estate notes are still at unrealistic levels that show little signs of leadership in putting these underperforming loans on the market at prices that will sell today – If one believes that it will take the sale of the tremendous load of existing defaulted and underperforming loans to stabilize this market, than we might have a long road ahead of us.

What does this mean?

Many compare todays distressed debt environment to the days of the early 1990’s when the Resolution Trust Corporation was formed to liquidate the underperforming assets brought on by the recession of that time.  Todays problem is of many magnitudes larger – the scope is so large that the these institutions holding this debt are not capable of taking the staggering losses that would be created if these defaulted assets were truly marked to market and liquidated.  Unrealistic pricing of these assets shows that banks and institutions are holding these assets and waiting for direction and change before they take action.

In our own experience of soliciting banks for defaulted loan portfolios, we have found that the banks in the weakest financial condition are often the most difficult to buy from – It is actually the stronger banks with an ability to absorb a loss and still stay in business where we have found the most success.

Some Closing and Summary Thoughts:

Does ”kick the can down the road” economics/politics still seem to prevail today? – YES

Might the upcoming elections defocus the politicians even more? –  PROBABLY

Is there a resolution just around the corner? – NO

Are we on the track to a quick and efficient recovery?  – NO

My thanks to Mr. Fogarty, editor of the National Mortgage News and his team for their vision and leadership – this conference is well organized and orchestrated and the Roosevelt Hotel is a first class venue – I look forward to coming back in 2012.

And a special thanks to my east coast amigos – your hospitality is greatly appreciated – the friendships developed are my favorite part of being in this business…

Take a tour around our expanding website – check out our previous and future blog posts – we are growing quickly and are striving to become a trusted resource for you in the note and real estate investing world.

To Your Prosperity,

Gordon Moss

Quixote Ventures, Inc.