Benaroya: We buy non-performing, unsecuritized mortgage whole loans. They are 90 or more days past due and they are usually single family residential. We buy these loans from variety of institutions, from investment banks to commercial banks to credit unions. A lot of institutions have had exposure to to non-performing mortgages, so there are plenty of options out there.
GlobeSt.com: How are you pricing these securities?
Benaroya: We buy them at fairly substantial discounts, not only to face value but also to collateral levels.
GlobeSt.com: And the exit strategy? The secondary market I guess?
Benaroya: Yes, the point is to turn a non-performing loan into a performing loan and then sell it back into secondary market. Another option is to refinance and have some other bank take on credit risk. Once we buy loans at a discount we service all loans that we buy ourselves by contacting the borrower. We forgive the principal and rewrite the loan in line with the current value of property and forgive all the underwater principal.
GlobeSt.com: How does the Obama Administration's plan to stem foreclosures impact your strategy?
Benaroya: It doesn't really. Obama's plan only helps loans backed by Fannie and Freddie. But those are not the types of loans we buy.
GlobeSt.com: What hopes or expectations do you have for the Public Private Investment Program?
Benaroya: Ultimately I hope it will help bridge the gap between what buyers are willing to pay for these securities or assets and what sellers are willing to accept. I hope to see it narrow the bid ask spread, in other words, to a manageable level.
GlobeSt.com: What about your fund in particular?
Benaroya: We have a $50 million fund that is completely unlevered right now that we set up for these purchases. Theoretically, let's say the government does ten times leverage like what it is doing with TALF. That would deliver for us $550 million in purchasing. If we buy at 50 cents on the dollar that is $1 billion plus in purchasing power. We are talking about thousands and thousands of loans.
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Erika Morphy
Erika Morphy has been writing about commercial real estate at GlobeSt.com for more than ten years, covering the capital markets, the Mid-Atlantic region and national topics. She's a nerd so favorite examples of the former include accounting standards, Basel III and what Congress is brewing.
