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Previous Issues
Issue 30: Loan Sale Premiums Hold Steady in November

Issue 29: Proper Risk Management Protection and Credit Worthiness

Issue 28: BoeFly Helps Veterans With Disabilities Connect With Lenders to Obtain Small Business Loans

Issue 27: Loan Sale Premiums Level off in October

Issue 26: SBA Secondary Market changes - Warranty Period and Premiums on New Larger Loans

Issue 25: BoeFly Surpasses the $1 Billion Transaction Mark

Issue 24: Loan Sale Premiums Continue Climb in September

Issue 23: Robert Tannenhauser, CEO of BoeFly, Interviewed by Michael McKee on Bloomberg Radio

Issue 22: Lender Optimism is up While Anxiously Awaiting the Small Business Jobs Bill

Issue 21: Loan Sale Premiums Blast to Record Highs in August

Issue 20: Title Insurance- the Lender's Perspective

Issue 19: Condemnation and Mortgage Lender's Rights

Issue 18: Long-Term Deals Continue Record Climb; Short-Term Deals Fade

Issue 17: Congressman Walt Minnick (D-Idaho) Gets It

Issue 16: Deeds and Forms of Ownership

Issue 15: SBA Loan Sale Premiums Hit Record High in June

Issue 14: What You Need to Know About Property Insurance

Issue 13: SBA Fixed Interest Rate Loans are an Important Product to have at the Ready

Issue 12: 504 Guaranteed Pool Program Summary and Survey Results

Issue 11: Loan Sale Premiums Surge to Record Highs in May

Issue 10: Environmental Risk for Lending Opportunities

Issue 9: How To Take Advantage of the First Lien Position 504 Loan Pool Guarantee Program

Issue 8: Investors Remain for SBA Loans

Issue 7: Retirement Funds for an Equity Injection - Selecting the Right Plan Provider

Issue 6: Why Outsourcing Environmental Risk Management makes Cents for Lenders

Issue 5: Loan Monitoring: Comfort in a Crisis

Issue 4: BoeFly Case Study: The economics of selling SBA guaranteed loans

Issue 3: BoeFly Lender Survey Results Q1 2010

Issue 2: Loan Sale Premiums Rally in Q1

Issue 1: The Importance of Efficiency in Secondary Markets

The Importance of Efficiency in Secondary Markets

By Alvin Sarter, Managing Member, Treuhold Capital Group LLC

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Large amounts of mortgage debt, both residential and commercial, will default over the next 5 years. Many of these defaults will be maturity based and others will due to the inability of borrowers to cover their debt service due to declining rents in most markets across the country. In addition, securitized debt, now pooled in the CMBS and RMBS markets, are about to implode with more product coming through the floodgates. Capital markets are frozen and available leverage is at stringent loan to value and debt service coverage ratios, making refinancing much more difficult without significant deleveraging by borrowers who are already financially stretched.

More and more banks want to or need to clear their balance sheets of these problem loans and no longer want to engage in time consuming and costly loss mitigation in house. Investors are seeking access to these types of products to diversify their portfolios.

So, how does one get efficient access to this market, both as a seller and as a buyer? It has always been difficult for smaller institutional investors and individuals to source community banks, servicers, special servicers, and non-financial institutional holders of performing, sub-performing and non-performing debt. It has been equally difficult for small community banks and other sellers of individual loans or small portfolios to access the smaller institutional investors and individuals that may present them with the most efficient way of dealing with these assets. More banks are marketing their debt product through auctions, with most sellers reserving the right not to sell if its threshold prices are not met, leading to weeks of wasted time and expense performing due diligence. Many portfolio sellers also stratify their portfolios making it extremely cumbersome for the small investor.

As a non-institutional buyer of individual notes and small portfolios, I suggest the following small changes to make the market more efficient which will improve the process and outcomes for the seller, buyer, and, ultimately, the economy as a whole. Direct access for sellers to connect with the decision makers selling the loans would be more efficient and cut down on cost and energy. Additionally, current practices of relying on data tapes containing information superfluous to a buyer’s decision to purchase or not are antiquated, instead a buyer should be supplied with precise data needed to analyze whether a bid is appropriate or not, and at what levels.

The creation of an efficient market for problem loans would enable Lenders to raise needed capital, improve their liquidity and resume normal lending practices.

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