BENEWOLF ... on banking

WARNING – DANGER – Loan Sale Confidentiality Practices

I am seeing lenders and loan sale advisors doing something today that astounds me and that I feel will not only have negative ramifications for both the lenders and advisors involved but for the entire loan sale  industry.  That something is the “advertising” of loans for sale via the Internet and showing the loan description, the collateral photograph and the collateral address without first obtaining a confidentiality agreement from the prospective buyers.

I have had many conversations with lender’s attorneys over the past twenty years as a loan sale advisor regarding the securities aspect of loan sales.  The majority, but not vast majority, of those conversations resulted in the attorney acquiescing and stating that although they considered whole loans a “security” that there was no clear cut regulation prohibiting a loan sale and that there was no licensing body, such as the NASD, or now FINRA, regulating the sale and marketing of whole loans.  Other considerations that affected positive decisions to agree to a loan sale were the fact that potential buyers were to be Accredited Investors; the loan would not be advertised for sale; that strict Confidentiality Agreements would be adhered to by both advisors and prospective buyers; and the significance that many peer lenders have been successfully conducting loan sales for many years without issue.

Then in 1999 the passage of the Gramm Leach Bliley Act (GLBA) and in 2000 the adoption of GLBA by the SEC in the formation of Regulation S-P again muddied the water as to “what confidential information is allowed to be shared by financial institutions and with whom.”  There appears to be a consensus that Reg. P as it is known is limited to “consumer” loans and does not apply to loans for “commercial” purposes.  However loan documents between borrowers and lenders can create many exceptions to these laws and regulations.  For a current insight into what these issues could be as it relates to loan sale I recommended reading a very clear and concise article by the McGuire Woods Law Firm at:

 http://www.mondaq.com/unitedstates/article.asp?articleid=121576

There is no argument that loan sale laypersons and seasoned professionals alike can become confused by what information is considered “allowed” to be shared with non financial institutions with or without a Confidentiality Agreement.  So let me try to quell the confusion here by simply stating what I see to be obvious:

All loan sale Confidentiality Agreements that I have ever received from a lender (I’m sure it’s well over 1,000 in 20 years) or have recently reviewed on the Internet sites advertising loan sales and that identify specific loans, collateral and collateral addresses contain a provision that specifically “prohibits” contact of the borrower or borrower's representative by the reviewer for “any” reason.

Understood, however that applies only to those who have “signed” the agreement.  Every loan buyer and real estate professional knows how to locate the name of the owner of a property when they know just the location not to mention the specific address.  By knowing the name of the property owner it’s very easy to look up the lien recording information thereby having the name of both the borrower and the lender.

This being the case poses the question: “How do you police “non-registrants” from contacting the borrower?”

Answer: “You cannot.”

Experience tells me that “bad” things can happen when a borrower is notified of an upcoming loan sale.  Experience also tells me that “worse” things can happen when potential buyers contact those borrowers.  I have not personally witnessed what happens when those same borrowers obtain legal counsel and file lender liability claims for breach of confidentiality but I have heard firsthand accounts of the results and they ain’t pretty.

I’ve said it before lenders, you know better; advisors you should know better.  It does not take a fortune teller, psychic or a sage to see the future if this practice continues.  To quote the movie "There will be blood."

 

 

Loan Sale Fees – The obvious and not so obvious

 The second most asked question I hear from potential sellers of loans today (right behind "What are my loans worth?") is “What is your fee?”

This should be a simple answer since the only loan sale fee Benewolf charges a seller is a “success fee.”  But I always feel the need to qualify my answer.  I constantly get feedback from loan sellers on what the “market” or standard fees currently being quoted are, but I am not sure lender/sellers are clear on what the market is on "success fees" in relation to what many advisors "aggregate" fees total.

So the next time you hear “a point,” “two points” or "about the same as a real estate fee" make sure you ask the advisor the following questions:

Is there a set up fee or loan boarding fee?

Is there a pulled loan fee?

What happens if the borrower pays the loan off during the loan sale process?

Am I allowed to continue the collection process during the loan sale marketing period?

What happens if the borrower gives an unexpected "deed in lieu" of foreclosure during the loan sale process?

What happens if the borrower files bankruptcy during the loan sale process?

Is there a closing fee?

Who handles the closing?

What is the fee if the loan segues into REO during the loan sale process?  

Is there a Buyer’s Premium?  Why?

Sperry Van Ness Powered by Benewolf’s success fees are based on asset quality and volume, the better quality the asset, the higher the volume the lower the fee percentage.  We will likely not be the cheapest in the market but the fee will be clear and there will be no hidden costs.  Make sure you are comparing "like kind" services from your loan sale advisor.

Sealed Bid Loan Sales – Their Time Has Come…and Gone

Today I see many loan sale advisors advertise or announce a “sealed bid” loan sale.  The term “sealed bid” literally means that bids are to be sent to a seller or person responsible for awarding a contract in a “sealed envelope” and opened publicly at a specific time and place then awarded to the highest or most qualified bidder.  In the loan sale world "sealed bids" that truly meet that definition have gone the way of the RTC.  However many loan sale advisors (including me for a long time) continue to conduct what is stated as a sealed bid sale.

By sealed bid what most advisors really mean is a “private bid” due on a certain bid date.  The problem with a “private bid” is that no one except the advisor really knows how many bona fide bids were actually received and at what bid level.  No advisors that I know of share their entire bidder list with the seller and certainly not with the buyers.  This bid format lends itself to the possibility of many untruths.  I am not calling advisors who sell in this fashion liars but it is impossible to know if and when they are telling the truth unless they are sharing with all parties, buyers and sellers, the actual bid tally.  And when I say bid tally, I mean one that not only shows the purported bid amounts but the bidder’s identity whereby such bids could be verified.

There are few, if any, loan buyers that have bid in a sealed bid format that have not received a telephone call from a loan sale advisor telling them that “they are in the hunt” or “really close to winning” if they could only bump their bid a few points.  When in reality they are bidding against themselves.  There are also few, if any, sellers that have not had the actual number of bids received by an advisor “puffed up” to show a larger number of bidders than there actually were or that have not been told of a “cover bid” (second place bid) that did not actually exist, in an effort to get the seller to accept the much higher “winning” bid.

Benewolf and our partner the Sperry Van Ness Asset Recovery Team have developed a loan sale platform that is truly transparent.  Both the seller and buyer can see the actual number of viewers, the number of actual bidders and the verified bid amounts.  Sellers and Buyers see the amount of the last bid received along with the date of the bid.  These bids are posted to the site each time a seller rejects a bid thereby allowing a potential buyer not to waste time submitting an equal or lesser bid.  They are also an effective gauge of where the market actually is “today” for almost any loan type in almost any geographic location.

So the next time you hear the word “sealed bid” ask the question “sealed from what?”  The envelope please…