From the third quarter of 2017 through the first quarter of 2018, the volume of re-performing loans (RPLs) traded in the secondary market exceeded the volume of non-performing loans (NPLs) for the first time. Amid these market conditions, RPL pricing has firmed up and in certain instances increased, while NPL pricing has held steady. These are two key findings in the Q1 2018 1st Lien Whole Loan Secondary Market Color report recently released by MountainView Financial Solutions, a Situs company.
In the report, MountainView confirms that most of the recent volume in the secondary market has come from RPL sellers, as the volume of NPL deals out for bid has slowed dramatically since late 2017.
In the first quarter of 2018 the market witnessed a firmness in RPL pricing and a respectable increase in pricing on certain pools. This pricing was due to several factors, including enhanced securitization economics, continued home price appreciation and more participants in the sector, which created a more competitive bidding environment.
The Q1 2018 1st Lien Whole Loan Secondary Market Color report indicates that RPL pool pricing, as represented by percentage of unpaid principal balance, ranged from the mid-80s to upper 90s, depending on pool characteristics. The pool size and loan servicer also contribute to pricing outcomes, with higher premiums being paid for larger pools (at least $50 million) and pools serviced by larger, non-specialty servicers.
In its analysis of NPL deals brought to market in the first quarter, MountainView said geographic portfolio concentrations for the first time witnessed a much higher percentage of judicial foreclosure state assets. In judicial foreclosure states, courts must approve foreclosures, which adds significant time to the process, and thus contributes to lower overall pricing for these pools. Assets in judicial foreclosure states tend to trade below 65% of broker price opinion (BPO), while loans in non-judicial states trade in the range of 74-85% of BPO.
Geography aside, in the first quarter, MountainView saw larger NPL pools generally trade in the mid-70s of BPO, which represents pricing in line with what the market saw in 2016 and 2017.
The full report is available for download on MountainView’s website.