Lenders including Bank of America and Citigroup are accelerating their sales of soured U.S. mortgages as investment firms compete to buy the debt.
Bank of America is offering $2.56 billion of troubled debt, consisting of nonperforming loans, home-equity lines of credit and some reperforming mortgages, according to loan broker Mission Capital Advisors. Citigroup is seeking buyers for $1.8 billion of reperforming mortgages, where payments have resumed, and JPMorgan Chase is offering $143 million of nonperforming loans. The planned sales follow more than $1 billion of troubled debt already offered in the past two weeks, Mission Capital said.
Lenders have ramped up their sales of defaulted mortgages, with more than $7 billion of the debt trading or coming to market this year as more hedge funds and private-equity firms seek to buy the loans and finance them through the bond market. The U.S. Department of Housing and Urban Development and government-backed mortgage company Freddie Mac also have been offering delinquent home loans.
"The supply has yet to meet the demand that's out there," said Luis Vergara, a managing director at New York-based Mission Capital. "A lot of capital has been set aside to invest in residential product."
Mark Costiglio, a spokesman for New York-based Citigroup, and Jason Lobo, a representative for JPMorgan in New York, declined to comment on the loan sales. Dan Frahm, a spokesman for Charlotte, North Carolina-based Bank of America, said he had no immediate comment.
Investment firms including Bayview Asset Management, John Grayken's Lone Star Funds, Ellington Management Group and Pretium Partners have been buying soured loans as foreclosures decline and the housing market extends its recovery, pushing up the value of the debt. Banks are tapping into increased investor demand as they face new rules following the financial crash which force them to pledge more capital for some assets they hold, such as troubled debt, Vergara said.
"We're seeing a lot of regional banks pick up loan sales in response to Basel III regulations," he said.
About $4.2 billion of nonperforming loans and about $3.2 billion of modified or reperforming loans have traded or come to market this year, data compiled by Mission Capital show.