“Banks have made a decision internally that a delinquent borrower is not a core customer,” says Altisource Residential (RESI) chief Ashish Pandey who expects as many as 500K non-performing mortgages to be sold in 2014.
Altisource is among a number of firms and hedge funds standing to benefit as banks unload into the recovering market. Ellington Management (EFC, EARN) and Starwood Property Trust (STWD) are also targeting the soured loans. "The supply of NPLs is going to be very substantial for the next several years," says Ellington CEO Mike Vranos, whose firm expects transactions this year will exceed last year's $25B.
Another seller is HUD, which since 2010 has sold 50K non-performing mortgages insured by the FHA and plans more this year. Winners of a December auction were Bayview Financial (backed by BX) and Lew Ranieri's Selene Investment Partners. They paid an average of 52% of the $2.6B in loan balances, or 69% of estimated property values.