Finding and Buying Non Performing Loans from Banks
As is the case with any significant financial transaction, if you want to buy non performing loans you’re going to need relationships. 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) and the FDIC announces their loan sales here, but best way to find and buy the best deals in non performing loans is to go direct to the banks and find and friend decision makers. Before approaching a bank, however, 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 it, 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 2 powerful contact plugins so you can get right to the decision makers.
Banks report nine kinds of non performing real estate loans (mortgages) every quarter. Those loan types are:
- Commercial Real Estate Owner Occupied
- Commercial Real Estate Non-Owner Occupied
- Multifamily (5 or more residential units)
- 1-4 Family Residential Construction
- All other construction
- First Position 1-4 Family residential
- Junior 1-4 Family Residential
- Revolving Lines of Credit (HELOCs)
- Agricultural Land
In addition to non performing 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.
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.
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John McCaffrey SVP and Managing Director of REDC, one of the world's leaders in maximized asset disposition strategies and asset management, uses BankProspector "I use it to determine which banks are heavy in the product that we sell and I track the N/A assets sold."
Distressed Pro has been an intuitive and invaluable analysis tool that allows us to quickly access and produce detailed reports on all of the FDIC bank related data and contacts at those institutions. The technology of DistressedPro allows our acquisition team to group by specific property types in a specific region of the country and drill down to a very detailed level of information to identify potential acquisition opportunities in our sweet spot, New England. We have been using DistressedPro for over a year now and find that the time savings more than pays for the already low subscription fees.
If I can use it anybody can use it. Tech is not my strong suit. I called [obscured] Bank and they told me they'd have something in 3-4 weeks. I also called [obscured] Cooperative based on what I found in BankProspector and I made a great connection. I've been using it for 3 days.