As we discussed in the recent article, “How PPR’s Mortgage Loan Portfolio Works,” the fourth quarter is usually the most active season for non-performing loan (NPL) trades. We’re already experiencing this, as October’s NPL acquisitions were significantly higher.
*We’ll say more about this recent activity below.
First, as a quick refresher, a “non-performing loan” is where a borrower on a residential loan has stopped paying. This is also referred to as a “defaulted loan.”
Since our founding in 2007, PPR’s core business model has been based on buying these non-performing loans and adding value to them by getting them to “perform,” i.e. by working with the borrower whenever possible to get him/her to start paying on the loan again. In industry parlance, this is now a “re-performing loan” or RPL.
In this model, the value of the RPL on the secondary market is significantly higher than when it was an NPL, and PPR generates revenue through the subsequent sale of RPLs.
In situations where it’s not possible to get a loan to perform again, such as when the borrower is deceased or simply not interested in staying in the property, we take back the property that’s secured by the mortgage and sell it at auction or as an REO.
See our recent interview with Amy Stavin, Director of REO Assets, to get a better understanding of how the REO process works for PPR.
Recent Loan Sale Activity
In October (2023), PPR completed four trades (acquisitions) of NPLs.
Here’s a snapshot of the total for October trade desk activity:
- Total number of loans purchased: 70
- Total Unpaid Principal Balance (UPB) of the loans: ~$20M
- Total property value secured by the loans: ~$29M
- State count: 25
What we like about these trades includes:
- The discounted purchase price, compared to the “face value” (UPB) of the loans
- The significant equity in the loans, as shown in the property value total
- The geographic diversity of the loans
For these loans, our primary strategy will be to do what we do best, which is to get them to RPL status and sell them back in the secondary market at significantly higher value.
For a more detailed explanation of that “value-add” process, see our recent interview with Taylor Nelson, Senior Acquisition Analyst, at https://pprcapitalmgmt.com/mortgage-loan-portfolio/.
We’re excited about the potential trades coming up between now and the end of the year, and it’s not a stretch to see us being able to take down an additional $100M+ in NPLs in that period.
We’ll keep you posted as that unfolds over the coming weeks.
As always, thank you to our valued investors and team members for enabling us to take full advantage of the opportunities that present themselves in Q4 and beyond.