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Are NPL and RPL Markets the Key to Investor Growth?

first_img The Week Ahead: Nearing the Forbearance Exit 2 days ago Governmental Measures Target Expanded Access to Affordable Housing 2 days ago in Daily Dose, Featured, Headlines, News, Secondary Market Share Save Home / Daily Dose / Are NPL and RPL Markets the Key to Investor Growth? A new report by Semper argues that the U.S. economy is transitioning from a post-crisis, recovering market back into a normalized market, and that NPL/RPL investments “should disproportionally benefit from the increases in credit availability and home price increases that typically occur during these transitions due to the embedded structural leverage to these factors.”According to Semper, the housing crisis and its immediate aftermath turned portfolios of clean, current-pay loans into “mixed bags of underwater, non-performing assets.” But this environment in the NPL/RPL market in turn allowed for the mortgage holders who preferred performing assets to transfer impaired mortgages to investors who saw opportunities through active loan servicing. Consequently, post-crisis changes in banking capital requirements compelled many NPL and RPL holders to reduce holdings of their assets on their balance sheets. This, Semper argues, created excess supply in the market, and that led to varied investment approaches‒‒private equity, hedge funds, and REITs, for example‒‒being set up to absorb that supply.“Today, we estimate an NPL inventory of [roughly] $105 billion, compared to estimates of $35 billion prior to the financial crisis,” Semper reported. “However, not only is the supply of NPLs still well above pre-crisis levels, NPLs are still well over double historical levels, and the market continues to draw new supply from a steady stream of ongoing loan defaults within the outstanding universe of pre-crisis mortgages, as well as post-crisis origination.”Semper argues that despite a recovering economy on its way back to normal, the need to effectively work out the NPL borrower base has not changed. Further, the company reported, these borrowers are being liquidated in a much more stable and functional credit environment than what we saw in the period immediately following the financial crisis.“As certain players have exited the trade, the supply and risk reward profile remains,” the report stated, “but it is now combined with our positive outlook on housing technical and fundamentals.”Semper recommends several approaches: NPL securitization senior tranches featuring 40 to 50 percent credit enhancement, coupon step-ups that limit the extension of securitizations (and, thereby, encouraging issuers to exercise optional redemptions); RPL shifting interest securitizations that center on heavily seasoned underlying loans that boast strong credit profiles; and NPL whole loans that allow opportunities to invest directly into an active asset management strategy based on the underlying credit, and allow investors to either highlight or reduce exposure to certain sectors or loan characteristics such as legal jurisdiction or property type.“We remain focused on investments and liquidity within the NPL and RPL sectors and remain constructive on the fundamental outlook of the assets and within the investment strategies above,” Semper concluded. NPL RPL 2017-08-09 Joey Pizzolato Servicers Navigate the Post-Pandemic World 2 days ago Data Provider Black Knight to Acquire Top of Mind 2 days ago The Best Markets For Residential Property Investors 2 days ago Joey Pizzolato is the Online Editor of DS News and MReport. He is a graduate of Spalding University, where he holds a holds an MFA in Writing as well as DePaul University, where he received a B.A. in English. His fiction and nonfiction have been published in a variety of print and online journals and magazines. To contact Pizzolato, email [email protected] About Author: Joey Pizzolato Related Articles Demand Propels Home Prices Upward 2 days ago The Best Markets For Residential Property Investors 2 days ago Servicers Navigate the Post-Pandemic World 2 days ago Tagged with: NPL RPL Data Provider Black Knight to Acquire Top of Mind 2 days ago  Print This Post Are NPL and RPL Markets the Key to Investor Growth? August 9, 2017 3,437 Views Previous: Home Equity: Funding Business Next: Bubble Ahead? Governmental Measures Target Expanded Access to Affordable Housing 2 days ago Demand Propels Home Prices Upward 2 days ago Sign up for DS News Daily Subscribelast_img read more