How to Find and Buy or Broker Non-Performing Loans

8 places to source non-performing loans:

  • Direct from banks
  • Direct from credit unions
  • Special servicers
  • Hedge funds
  • Brokers
  • The FDIC
  • Marketplaces
  • Private Note Holders

Sourcing Non-Performing Loans from Banks

We track all the late and non-performing loan portfolio balances for every bank in the US.

Here’s a video about how that works.

In any significant financial transaction the deal is going to happen between people, erego if you want to buy non performing loans you’re going to need relationships with people who are selling them. A lot of people want to stop right here, they don’t like that answer, they want an ‘easy button’. The truth is there are easier ways to source notes but here’s the truth:

If you’re not buying direct from the originator you’re paying a premium

That’s a fact. Why? Because a few things happen here:

  1. The note broker has to make a commission
  2. You are going to compete against other qualified buyers

When you’re sourcing non-performing notes direct from the source, from banks, you’re going to have less competition and no middle man making a fee. BUT you are going to have to work for it. If you are the broker then you have no choice you have to source notes direct or suffer, broke, at the end of a hopeless broker chain (true).

Each quarter banks report their late and non-performing loans. We track them here and we provide contact information for each bank.

Banks report 11 types of non-performing loans 9 of which are real estate and additionally they report, C&I, consumer credit card and non-performing auto loans.

Banks report nine kinds of non performing real estate loans (mortgages) every quarter. Those loan types are:

  1. Commercial Real Estate Owner Occupied
  2. Commercial Real Estate Non-Owner Occupied
  3. Multifamily (5 or more residential units)
  4. 1-4 Family Residential Construction
  5. All other construction
  6. First Position 1-4 Family residential
  7. Junior 1-4 Family Residential
  8. Revolving Lines of Credit (HELOCs)
  9. Agricultural Land

Before you approach a bank for non-performing debt, you should have some data. You should know, for example:

  • What percentage of their loans are late and non-performing?
  • Has the bank been charging off or writing down a substantial amount?
  • Are late and non performing loan conditions improving or deteriorating?
  • Does the bank have sufficient capital to be able to sell loans at market value?

Banks are regulated by a number of different government agencies. The common thread however is that insured banks have to report a statement of condition on a quarterly basis to the FDIC in the form of a Call Report. Presently all of these filings (OTS regulated banks excluded) are received at a clearing house, or aggregator, called the FFIEC. In addition to the quarterly reports many banks make amendments and adjustments to their reports, electronically, throughout the quarter. A lot of information can be gleaned from the FDIC call reports.

BankProspector connects to the FFIEC database on an hourly basis and pulls in all the financial data, parses the parts that are important to you as an buyer or broker, and then makes the real estate data, and in particular the late and non performing loan data searchable and sortable. Then we pair that financial data with contact data so you can get right to the decision makers.

In addition to non performing loans (nonaccrual loans) banks have to report 30-89 Day late loans, 90+ day late loans (and still accruing) and OREO (commonly referred to as REO, aka ‘bank owned property’). At this time there is not a more granular breakdown of the non performing commercial and construction loans for example hotels, office properties, retail, etc all fall under commercial non performing loans and broken condo project or a subdivision or an abandoned office building all fall under non performing construction loans.

Banks report aggregate totals for the various stages of late and non performing loans as well as REO but they do not have to report individual loan details. At present their is no central database where one can find the details for individual non performing whole loans.

Sourcing Non-Performing Loans from Credit Unions

There are more than 7,000 credit unions many of them have non-performing assets. We track non-performing loans and foreclosed and repossessed assets for every credit union in the US.

Working with credit unions is very similar to working with banks with a few differences.

  1. Credit unions are very sensitive to their reputation, most of their loans are with members, they’re not excited about selling to predatory note buyers (generally)
  2. Credit unions are small… You are most likely going to talk to the president, call there first.
  3. Credit unions are regulated by the NCUA rather than the FDIC

Sourcing Notes from Special Servicers

A servicer is an entity that handles the administration of a loan on behalf of or in partnership with the owner. A special servicer handles the administration, collection, workout, and sometimes disposition of problem loans.

We maintain a growing list of loan servicers, special servicers, BPO and REO asset Management companies here.

Sourcing Notes from Hedge Funds

Hedge funds buy large pools of non-performing loans from (typically) the largest banks. There are a few “exits” that hedge funds use.

  1. Foreclosure and then sale as REO
  2. Workout (loan modifications)
  3. Wholesaling

The last of these is where you can find opportunities. Hedge funds can buy much larger pools than most investors. When they do they’re able to slice up the pool and find different ways to make a return on different sets of loans. After a fund has run its course and made its returns it will look to clear the rest of the assets off it’s books and move on.

If you want to source notes from hedge funds, sadly, they don’t have to make public reports like banks and credit unions because they’re not insured. You can find lists of hedge funds with real estate assets if you google for it, expect to pay a few thousand dollars for it.

Note Brokers AKA Loan Sale Advisors

There are a few online sources that allow you to buy non performing debt like DebtX and First Financial as well as other note brokers and intermediaries (some of which are BankProspector subscribers). Other note brokers and loan sales advisors include Mission Capital, CBRE (sometiems), Cushman and Wakefield (sometimes) and increasingly a long list of smaller independent players in the market.

FDIC Loan Sales

The FDIC announces their loan sales here

Loan Sales Marketplaces

There’s a whole crop of loan sales marketplaces or ‘MLSs’ of sorts that are cropping up. LoanInterchange.com, LoanMLS.com (more to come on this topic in the future)

General Non-Performing Loan Info

Definition of a Non-Performing Loan (NPL)

Investopedia defines a non performing loan as a loan that is not being paid according to terms. Non performing loans are reported by banks in their quarterly FDIC call reports as ‘nonaccrual loans’. When a bank reports a loan as ‘non accrual’ it’s because there is no longer any reasonable expectation that the loan will be repaid according to terms.

Non Performing Loan Ratios

Non performing loan ratios have of course accelerated during the recent downturn. Construction loans have been some of the worst performers with some local and regional banks struggling with 40, 50, 60 I’ve seen up to 80% non performing loans. Many commercial portfolios are now seeing non performing loan ratios north of 10%. There are no specific rules that we’re aware of at this time that dictate acceptable non performing loan ratios, only capital adequacy ratios.

We track 12 Types of Non-Performing Loans

  • Residential first position
  • Residential junior liens
  • Revolving open-ended lines of credit
  • Multifamily and Apartment Loans
  • Non-Owner Occupied Commercial Real Estate Loans
  • Owner Occupied Commercial Real Estate Loans
  • 1-4 Family Construction Loans
  • Land acquisition and development loans
  • Commercial and Industrial (C&I) Business Loans
  • Farm and Agricultural Loans
  • Auto Loans
  • Consumer Credit Cards

Comments

  1. says

    thanks for your overview of the note buying situation, maybe it is hidden there someplace, however i am not sure you answer the question. Re-selling non- performing notes individually per se. be that as it may, i am still planning to join your company , great info. as usual.

  2. anand v says

    Hello , I also wish to refer to any types of Lenders who is interested in buying commercial loan of about eight to ten million usd . I have clients of commercoial real estate .

  3. Kenneth Feldman says

    As a licensed NYS real estate agent I want to learn more about brokering commercial non performing mortgages to present to my value commercial investors. How can I start?

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