BENEWOLF ... on banking

2010 Loan Sale Advisor of the Year

If there was such an award as the “2010 Loan Sale Advisor of the Year,” Sperry Van Ness powered by Benewolf would have to be a top contender.   The partnership formed in October between the Sperry Van Ness Asset Recovery Team (SVNART) and Benewolf has already made some major changes in the loan sale market.

1^st – the partnership has made SVNART powered by Benewolf the largest loan sale advisor in the nation in the terms of number of trained advisors.  To date (57) SVNART members have completed an intensive training program on the many nuances of loan sales and how to effectively interact with lenders needing to shed assets.   One of the edicts these (57) independent advisors are charged with is to make loan sales opportunities, both selling and buying, available to the remaining 1,000+ Sperry Van Ness Advisors nationwide and their universe of clients.  

2^nd - SVNART powered by Benewolf has developed the Asset Recovery Continuum (ARC). A strategy that allows lenders to offer loans for sale, while continuing their collection efforts, at any stage of performance or impairment from performing, to non performing, to litigation or bankruptcy to foreclosure and REO, all without ever changing advisors.

3^rd - SVNART powered by Benewolf has developed a Loan Sale Suitability Rating system that aids a lender in the determination of buy, sell or hold strategies and in the selection of loans most suitable for sale and further for use in identifying loans that may create excess risk by continuing to hold.   

4^th - the partnership of SVNART powered by Benewolf has created the only firm in existence which calls itself a Commercial Real Estate Loan Sale Advisor.   While most loan sale advisors sell all types of loans including consumer, unsecured, credit card, auto, residential, land, business loans and commercial real estate, SVNART powered by Benewolf exclusively sells loans secured by 1^st lien position commercial real estate on a one off or single asset basis.  The combination of a national commercial real estate advisory firm and a national loan sale advisor gives the partnership a unique and distinct advantage in valuing loans secured by commercial real estate.

So if you wish to create such an award we will throw our hat in the ring and will proudly wear the crown.  If not, there is always 2011 to look forward to and you can bet that SVNART powered by Benewolf will again be a contender.

Choosing a Suitable Loan Sale Candidate

Loan sale advisors spend a great deal of time conducting loan valuations and trying to develop an accurate loan valuation model, most of the time we are wrong.  Sometimes we are wrong for the same reasons appraisers are wrong – “the assumption that you have a willing buyer and a willing seller” AND for the reason that at the end of the day “we” are not the ones writing the check for the purchase.

Other times we are wrong because distressed loans cannot be valued “solely” on the basis of collateral.  The great unknown is the rationally of not only the lender/seller but of the borrower.  An irrational borrower can be a great time drain as well as a financial drain as it relates to lost income and increased expenses such as legal fees, receiver fees, filing fees, etc.   An irrational lender/seller can cost a potential loan buyer both time and money spent on the due diligence process and can cost a loan sale advisor not only money lost in time spent and fees not received but in reputation.  Every time a loan sale advisor brings a deal to the market that is “un-saleable” either because of unrealistic price expectations or because it has terms and conditions that cannot be met, the advisor risks their reputation with their buyer base.  Our goal is that our good buyers eagerly answer the phone when we call because they know there is money to be made.  When we bring undoable deals to the market we erode that eagerness and soon we will lose that individual or firm as a potential buyer.  It’s kind of like going to a restaurant and getting a bad meal you may come back once more if you’re a usual customer but if it’s your first time there you won’t be back.

With these risks in mind Sperry Van Ness/Benewolf has developed a rating system for lenders to use in determining “which loans are suitable loan sale candidates.”  We have identified thirty (30) data points of a loan that can be subjectively rated on a scale of 1-10 with (1) being a poor candidate for sale and (10) being an exceptional candidate for sale.  We have developed a definition of the rating that allows for all users to have the same general basis for the score and a hypothetical sample loan to use as an additional guideline.  Our goal is that multiple users can achieve closely matched aggregate scores even though the individual data point ratings will differ on the same loan.

While developing a strategy that would be beneficial to a loan sale advisor as it relates to marketability we discovered another strategy that could be beneficial to a lender when considering “risk” of holding versus selling.  The two scores combined provide an exceptional insight for a lender determining their buy, sell or hold strategy.

Notable quotes today

"Suspending mark-to-market accounting, in essence, suspends reality." ~ Beth Brooke, global vice chair, Ernst & Young

"Blaming fair-value accounting for the credit crisis is a lot like going to a doctor for a diagnosis and then blaming him for telling you that you are sick.'' ~ Dane Mott, JPMorgan Chase & Co.

Follow Closely - Huge Story

The news hot off the presses "Ten banks -- Bank of America, Barclays, Citibank, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan, Merrill Lynch, Morgan Stanley and UBS -- each agreed to provide $7 billion "to help enhance liquidity and mitigate the unprecedented volatility and other challenges affecting global equity and debt markets."  That is a 70 billion cushion that could be the jump start banks need to be able to liquidate loans at "market" prices instead of what they need or can afford to sell for.

I know it's not a total solution but it could mean huge things for loan buyers and loan sellers.

Stay tuned!

Riding Drag

Riding Drag - The job on a cattle drive taken by the Drag Rider: a person on horseback who takes the position at the rear of the herd;  who picks up strays and bust cattle out of hard to reach places and does all of the jobs no one else wants to do while in inadvertently eating copious amounts of dust.

I don't know about the other loan sale advisors in the country (loan buyers too for that matter) but by the amount of dust on my hat and in my mouth it sure makes me feel like I've been riding drag.  Do-able deals are about as rare as hen's teeth.

I hear stories each week about loans being sold in the 30's or low 40's but they usually begin with "Once upon a time."  As more and more lists come out like the "Texas Ratio" identifying problem banks and as another bank bites the dust each Friday afternoon, you've got to believe that next week is the week that "all hell will break loose."  However it is always "next" week.

Folks, the loan loss reserves are just not there!  Bank Implode's website had an outstanding article this week http://bankimplode.com/viewnews/2008-09-11_BanksWhereTheMoneysNot.html entitled "Where the Money's Not."  You need to read this.  If you think there is an easy solution for banks to shed their non performing loans, think again. 

Texas politico and former HUD Secretary under President Clinton and Countrywide board member 2001-2007 (earning over $5.8MM as a result of selling off Countrywide stock) Henry Cisneros, this week was quoted as saying "it is time to consider another RTC type entity."  As I said in an earlier post "be careful what you wish for."  I invite you again to study closely the effectiveness of the RTC and learn about who, and how few, actually benefited from their halcyon days.

In the mean time I'll keep riding drag and picking deals out of the brush.  I'll pull down my hat and tighten up the ol' bandanna.  At least drag riders don't get killed in a stampede.

What I did on my summer vacation...or not

As the summer of  2008 draws to a close I feel compelled to report on my fun, relaxing vacation or rather lack of one.  I spent my warm balmy Oklahoma days primarily doing three things.  Talking on the phone, reading and writing.  Sound relaxing?

It does until you learn that I have been talking to scores of bankers that are totally distraught about their capital positions (or lack of capital) their loan loss reserves (or lack thereof) and the present (and rapidly declining) value of their loan collateral and their ever-growing REO portfolios.

It sounds like a nap in a hammock until you learn that I've been visiting with dozens of investors that have hundreds of millions of dollars of ready capital but are unable to buy assets from lenders at what most believe are fair market prices.  Prices that most likely will continue to erode.

It was almost like curling up with the latest John Grisham novel until you know that I have been reading twenty or more daily periodicals that are chronicling this ever unfolding, and seemingly unending, financial crisis that now appears historic by any standard.

And don't forget the leisurely writing of my diary (this blog).  This has been an attempt to explain to my clients and prospective customers what I am seeing from the bowels of lending institutions and disseminate what I've learned from the data overload of the financial encyclopedia known as the Internet. 

Feel sorry for me yet? Don't, I have home movies of the whole vacation.  Wanna see?

Vapor Lock

Back in the 1960's on a family trip to Mexico City, our brand new Pontiac station wagon suddenly quit running as we passed through the mountains just north of the city.  My father (a serious non-mechanic) immediately diagnosed the problem as "vapor lock" --- a condition he had heard about that could be brought on by driving at high altitudes. 

Since he was certain of the vapor lock he didn't bother looking under the hood.  Had he done so, he could have found that we had a disconnected distributor wire (a condition immediately recognized by a passing policeman after we sat for 6 hours on the side of the road on Christmas Day).  Funny now, not so much then.  As a result, all car trouble in my family for the past 40 years has been immediately diagnosed as "vapor lock" no matter what the real cause.

So, last week when my brother asked me about the cause of the present banking gridlock, I subconsciously answered "vapor lock."  In 1966 we did not have Google or Wikipedia as we do today.  Of course, I searched both resources to discover the meaning of “vapor lock”.  The definitions read in part, "It occurs when the liquid fuel changes state from liquid to gas while still in the fuel delivery system. This disrupts the operation of the fuel pump, causing loss of feed pressure to the carburetor or fuel injection system, resulting in transient loss of power or complete stalling. Restarting the engine from this state may be difficult."

Wow! Change a few words (fuel to money) and you've got it!  We "do" have "vapor lock."  And restarting the engine from this condition WILL BE difficult.

Do we want to close banks..or fix them?

In Alan Greenspan's biography "The Age of Turbulence" he writes of speaking to the Japanese in January of 2000 and summarizes the RTC's success as follows; "I suggested that the U.S. government strategy of (1) bankrupting a large part of our failed thrift industry, (2) placing the assets in a liquidation vehicle, and (3)unloading the assets at large discounts in a manner that would reliquefy the real estate market  fit the Japanese situation rather closely."  He went on to say had the Japanese done so it would have shortened their 15 year economic stagnation considerably.

In an earlier post I quoted Mr. Greenspan as saying ...

An RTC comeback?...hold your applause

There has been a good deal of press the last couple of days about FIRREA and what someone called "non-feasance" by regulators by not enforcing actions sanctioned under the Act.  One of the actions allowed under FIRREA was the development of ...

Live Trading of Dead Loans

I announced last week Benewolf's participation in Loancowboy's upcoming "What Every Banker Needs to Know About Selling Loans" conference.  I am excited to announce today, for the first time in print, that a second day will be added to the conference where we will attempt to trade distressed loans live in a new format we call ...