NEW YORK CITY-It’s premature to say that the FDIC is getting out of the loan-sale business, but neither is the agency ramping up its activities in this arena. That paves the way for banks to bring their problem loans to market, locally based Ernst & Young says in a new report based on a survey of investors conducted by its distressed asset team. Regional lenders in particular are poised to become more active in the distressed asset arena, E&Y’s Chris Seyfarth tells GlobeSt.com.

The larger banks, which in 2010 set aside almost 50% smaller loan loss reserves than the year prior, have generally enjoyed “some pretty strong earnings” lately, says Seyfarth, San Francisco-based partner in E&Y’s transactions real estate practice. As a result, he says, the larger institutions may have “less incentive to bring out large portfolios if they can hold onto them, continue to work and manage them and not have to bring them to market at what could be a loss.”

With the regional banks, by contrast, “There may be more pressure,” Seyfarth says. “Plus, the larger banks were more active in the CMBS market, so in that sense, they don’t have the exposure that the regional and smaller banks have.” The more regional lenders were “more oriented toward keeping the loans on their balance sheet. Because of that, their exposure is greater.”

The previous year was an active one for the FDIC as far as loan sales were concerned; “they had some significant transactions,” says Seyfarth. It’s not clear what this year will look like; he says: while the agency still has many banks on its watch list, the pace of actual closings year-to-date has slackened. “They just may not have as many assets to deal with as they had initially.” That being said, Seyfarth says we can expect the volume of FDIC deals to remain fairly steady through the balance of 2011.

Although the FDIC isn’t necessarily disposed one way or the other toward individual sales versus portfolios, “the bigger issue with packaging and selling a large portfolio is pricing,” he says. “Typically you’re going to take a bigger discount with a large portfolio. That may be worthwhile, because then you get rid of bunch of assets quickly.” But from the FDIC’s viewpoint, says Seyfarth. While selling assets one by one generally takes longer, “in some ways you might get better pricing.”

E&Y’s report also finds that investors’ return expectations appear to have solidified in the high teens, with 62% of survey respondents expecting returns in this range, compared to 43% last year. E&Y says this may indicate the emergence of more opportunity funds in the market for distressed debt this year, and Seyfarth adds that for investors who haven’t dropped out of the game due to lack of opportunities, there’s more of an appetite for risk today.

“The bigger buyers of nonperforming loans understand that risk/reward equation quite well,” he says. “They’ll simply price the risk into their equation. Investors have more money than they can spend, which indicates that supply isn’t keeping up with demand. Even if the risky assets come out, they’ll be priced accordingly.”