Impact Of Macroeconomic Trends On Residential Mortgage Industry: Favorable Credit Environment For Whole Loans Sales

[Published by the Loan Sales and Real Estate Sales Desk, Mission Capital]

New York (11/29/2018)

Current market conditions have created a favorable environment to monetize whole loans.
- Strong fundamentals in the labor markets led to vastly improved credit performance and fuller valuations in the loan space.
- Investors continue to recognize the higher returns and wider moat that whole loans offer compared to traditional bond investments.
As a macro-economic backdrop, the unemployment rate is now at its lowest level in almost 40 years and wages grew at a healthy pace of 2.9% over the last 12 months.
Alongside the positive economic developments, loan sale volumes shifted substantially from Non-Performing to Re-Performing loans as loan servicers developed practices to collect more meaningfully on charged off loans and modify impaired loans more effectually.
Meanwhile, the positive credit performance was offset by softness in rates, which sold off in early October in response to Fed hikes and balance sheet run off. Likewise, the Fed’s Dot Plot shows a forthcoming inversion of the discount window, signaling a looming recession.

Given the full valuations and improved performance, it’s an opportune time for banks to sell their assets at attractive levels so they can focus on their core business of originating new loans. Further, this source of loan product provides investment managers an opportunity to diversify their exposure away from traditional bonds and into whole loans or privately structured products that generate more attractive returns. On the buy-side, the strong credit fundamentals provide an opportunity for funds to harvest their lower yielding assets at favorable levels so they can focus on working out more impaired assets.

About Loan Sales & Real Estate Sales

Mission Capital represents preeminent financial institutions, investors and government agencies on the sale of performing, sub-performing and non-performing debt secured by all types of commercial and consumer collateral, commercial real estate investment property and tax liens. For more information, visit www.www.missioncap.com/loan-sales-real-estate-sales

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Managing Directors of The Debt & Equity Finance Group, Melanie Herald & Jonathan More, share valuable insight on the red hot Miami Office Market in our Miami Market Update video series. This is Chapter 2 of our Miami Market Update series.

Watch Chapter 1: Miami Market Update | Transportation Connectivity here

JONATHAN MORE – MANAGING DIRECTOR – THE DEBT & EQUITY FINANCE GROUP

Jonathan More is a Managing Director in the Debt & Equity Finance Group at Mission Capital, where he is responsible for originating, underwriting and structuring commercial real estate transactions nationwide on behalf of owner-operators, private equity firms, developers and family offices. Jonathan’s diverse skill sets, deep market knowledge and industry relationships have proved critical in working through transactions and originating business over his 15-year real estate career.
Prior to joining Mission Capital, Jonathan worked on the execution and originations teams for Ackman-Ziff, specializing in financing office, retail and residential properties, as well as loan sale advisory work. At Ackman-Ziff, Jonathan structured and completed $2.0 billion of closed debt, mezzanine, preferred equity, joint venture equity and loan sale transactions. Prior to Ackman-Ziff, Jonathan worked in leasing and investment sales for the Manhattan office of CBRE Group. Jonathan received a B.A. in Economics from the University of Michigan, and an M.B.A from Columbia Business School, where he placed first overall in the Bodini Competition for Real Estate Investment & Entrepreneurship. He is licensed as a real estate broker in the state of New York.

MELANIE HERALD – MANAGING DIRECTOR – THE DEBT & EQUITY FINANCE GROUP

Melanie Herald serves as a Managing Director of the Debt & Equity Finance Group at Mission Capital where she is responsible for the origination, structuring, and placement of commercial real estate transactions on behalf of operators, developers and global institutional and family office investors. In addition to the finance business, Melanie focuses on sourcing and executing loan sale opportunities and will oversee growth in the Miami office for Mission Capital.
Prior to joining Mission Capital, Melanie was a Principal with Sienna Capital Partners where she executed over $200mm in equity fund recaps and new acquisition transactions for clients. Prior to Sienna, Melanie served as Head of Capital Markets and Investors Relations for Urban American, a multifamily operator in New York City for whom she currently consults. From 2002 – 2011, Melanie executed over $50bn of commercial and residential mortgage transactions as a senior salesperson at Goldman Sachs Melanie holds a BA from Bowdoin College, where she received a Thomas J. Watson Fellowship and earned an MBA from the Johnson School at Cornell University and served as a Student Agencies Fellow. She serves on the corporate board of PopTracker LLC, a technology and media company and FORCE, a non-profit. Melanie is a fluent Spanish speaker and holds Series 63 and 7 licenses.

About Mission Capital:
Mission Capital is a technology-forward real estate capital markets firm built on a culture of deep client service. Founded in 2002, our complementary asset sales and capital raising platforms, combined with our diligence and consulting services, allow our institutional and governmental client-base to achieve liquidity and optimize portfolio strategy throughout the credit cycle.

Learn more about the multitude of offerings at Mission Capital here: https://www.missioncap.com

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Jonathan More (MANAGING DIRECTOR – The Debt & Equity Finance Group) and Melanie Herald (MANAGING DIRECTOR – The Debt & Equity Finance Group) sit down and chat about the thriving Miami Market. We start with the growing Transportation Connectivity servicing the Miami metropolis.

JONATHAN MORE – MANAGING DIRECTOR – THE DEBT & EQUITY FINANCE GROUP

MELANIE HERALD – MANAGING DIRECTOR – THE DEBT & EQUITY FINANCE GROUP

Learn more about the multitude of offerings at Mission Capital here: https://www.missioncap.com

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By Nicholas Paidas – Loan Sales & Real Estate Sales

Tax liens are certificates issued by a municipal taxing authority placed on a property when the property owner fails to pay property taxes. Municipalities rely on annual property tax revenue to fund general budgetary expenses and provide services to their residents. When a property owner fails to pay taxes, municipalities may face a budget deficit. To fund this deficit, municipalities in states that permit the sale of delinquent property certificates offer tax liens to private investors via in-person or online auctions. Currently 30 states offer tax lien sales.

Tax lien sales are typically conducted as Dutch auctions, with bidders bidding down the interest rate and potentially offering a “premium” in order to obtain the tax lien. Proceeds from the auction are retained by the municipality, with the winning bidder obtaining the right to collect taxes from the property owner plus applicable interest, penalties and fees at the lowest interest rate bid in the Dutch auction plus applicable / allowed fees. The property owner has a statutory redemption period to pay property taxes as well as interest, penalties, and fees. The redemption period, interest, penalty, and fees vary state by state. The property owner benefits from the lowest interest rate resulting from the Dutch.

The tax lien certificate is superior to all other liens on the property except federal tax liens (the exception being certain types of aged liens in Puerto Rico). At the time of a municipal auction, the delinquent tax certificates sold is typically below 10% lien-to-value of the appraised property value. If the property owner does not redeem the tax lien during the given redemption period, the tax lien holder has the ability to begin foreclosure and obtain title to the property. The typical redemption period is 2-3 years once the delinquent tax is auctioned and purchased by a private investor.

Typical tax lien investment funds purchase delinquent certificates as a secure buy and hold asset until redemption or foreclosure. More recently, fund managers, investors, and lenders are seeking liquidity prior to the redemption deadline or foreclosure. Tax lien holders may decide to sell on the secondary market due to the age of the tax lien portfolio, fund strategy, equity and / or debt capital structure, inability or lack of desire to commit capital to foreclosed assets, or exit from the industry. Conversely, funds acquire tax liens on the secondary market for specific real estate market opportunities, to improve portfolio returns, to compliment primary market auctions, and to balance accelerated redemptions. In response to market demands, Mission Capital Advisors has entered into the institutional secondary market to advise participants on tax lien sales, disposition strategies, and offer specific tax lien warehouse financing.

For more information on tax lien sales, acquisition, or portfolio financing, visit Nicholas Paidas’ team page, or him directly at 917-831-4419 and/or email at npaidas@missioncap.com.

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