Many of the distressed loans were sold in large portfolios to hedge funds and private equity firms, but those companies end up selling off a portion of those portfolios to mom-and-pop investors who may only be interested in buying a handful of distressed loans rather than hundreds or thousands, according to Speed. “Every asset in their portfolio is not going to fit their long-term strategy,” he said. “They are buying the portfolios … they have to figure out what to do with them.” The latest report available from the U.S. Department of Housing and Urban Development (HUD) shows that through October 2016 nearly 81,000 non- performing loans were sold through its Distressed Asset Stabilization Program (DASP) with a cumulative unpaid principal balance of $13.5 billion.
the agency that oversees Fannie Mae and Freddie Mac, shows the two enterprises had sold nearly 42,000 non-performing loans with an aggregate unpaid principal balance of $8.5 billion through May 2016. Redefining Distress Speed is looking beyond the distressed note market to find other pockets of opportunity for investors. His next target involves providing seller financing for “turnkey” rental properties in low-value housing markets. “(In) Birmingham, Buffalo, Kansas City, where you see these working class turnkey properties … I’ll sell a house at a 10 cap (rate),” Speed said, explaining the properties, neighborhoods and tenants all come pre-vetted for the passive investor purchasing the rental. “If it sells for 80 grand, I pretty much guarantee he’s going to get the ‘slow no’ at the bank. … Instead of paying all cash, he pays half cash and I’ll finance the other half. In six
years at 6 percent interest that loan will fully amortize. That investor will have a free and clear house in six years.” A total of 2,598 single family homes nationwide were purchased with seller take-back loans in 2016, up 41 percent from 2015 to a four-year high, according to ATTOM Data Solutions. The combined value of those loans was $324.9 million, up 62 percent from 2015 to a six-year high. “What’s distressed is houses that aren’t conventionally financeable. … You’re telling me that a cash market is an efficient market in real estate?” Speed continued. “I understand the power of providing a loan when the bank says no.”
The latest report available from the Federal Housing Finance Agency (FHFA),
ATTOM Data Solutions • P9
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