The sale of distressed assets has become one of the largest segments of the mortgage business, panelists at the Mortgage Bankers Association's Secondary Market Conference in New York agreed.
John Daurio, chairman of Kondaur Capital in Orange, Calif., told a standing-room-only session Monday that since March 31 roughly $10 billion worth of nonperforming mortgages has been put up for sale — "more than we've seen cumulatively over the last couple of years."
Only 30% of that total has actually changed hands, because many sellers are simply "feeling" the market, Daurio said. "But even at that, far more has traded than in previous years."
A lot more sales can be expected in the future, said James Lockhart, the former director of the Federal Housing Finance Agency (the conservator for Fannie Mae and Freddie Mac) and now vice chairman at WL Ross & Co., a New York private equity firm that has built a $1.5 billion mortgage recovery fund to buy bad loans in bulk.
"We still have a year or so to go to work our way through" the huge number of distressed assets, Lockhart said.
He said the "best thing that can happen going forward" is to move bad loans into the hands of investors who are willing to work them out one way or another.
"We need to clear the market," he said.
"Too many mortgages are still sitting on balance sheets in need of being resolved."
Daurio said that, while Kondaur's goal is to keep people in their homes, only 10% are able to remain.
The majority end up taking "a significant amount of cash" in return for handing over the deeds to their homes, while 20% wind up in foreclosure because they have either skipped and cannot be found or the junior lien holder is being unreasonable.