EDITOR’S NOTE: The following is an article brought to you by Bayview Solutions, LLC, a company that specializes in working with debt buyers and sellers. Learn more about Bayview at www.bvs-llc.net.
If the debt-buying world was a sports movie, the musical montage would be crescendoing and the industry would be getting off the mat or the ground, dusting itself off, staring its opponent in the eye and saying something along the lines of, “That all you got?”
The industry, all but left for dead a few years ago, is enjoying a resurgence in 2017, thanks to the return of sellers that had left the market, and an influx of sellers from new asset classes, including auto loans and marketplace loans. Buyers and sellers are also buoyed by the expectation that the Trump administration will be less interested in regulating the industry as the previous administration was, and that regulatory actions taken by agencies like the Consumer Financial Protection Bureau have had the effect of establishing clear boundaries about what is, and what is not, allowed.
“I’m seeing new opportunities every week instead of every other month,” said Adam Parks, the chief acquisitions officer at Investment Retrievers and a board member of RMA International, the trade group that used to be known as DBA International. “The frequency of opportunity has increased.”
The news isn’t all great, though. While the number of deals available being made available by creditors, banks, and other originators is high, those portfolios are not being allowed to be re-sold or traded again, unless they are sold back to the original issuer. Most deals include language that restrict re-selling the portfolios, which is intended to protect issuers. The no re-sale clauses were originated by the CFPB in regulatory actions that the agency took against JPMorgan Chase, Encore Credit, and Portfolio Recovery Associates.
“There have been so many things that have been leased that aren’t being allowed to be re-sold,” said Jason Pratt, the president of Portfolio Management Group. “Most buyers can’t endure not experiencing the cash event that comes with a resale like scenario.”
The business model for most debt buyers is to purchase a portfolio, work it for a relatively short period of time, and then sell it to someone else. Most debt buying business models are built on being able to re-sell a portfolio for 30%-50% of the original sale price. Prohibiting portfolios from being re-sold puts a major dent in those business models.
Where there might be some movement, especially in the short term, is allowing buyers of portfolios to re-sell, but only to an entity that is approved by the original creditor.
“We’re starting to have conversations with banks about that,” said Mark Naiman, the chief executive of Absolute Resolutions Corp., and the president of RMA International. “We’ve seen originators who are a little bit more open to the concept of portfolio sales to another one of their approved buyers. They understand that if they have already done an audit on a particular company,” it might not necessarily matter that the portfolio is not being sold to another “pre-approved buyer.”
The types of portfolios that are out there include much of what has been available for the past few years — such as payday loans, credit cards, and telecom — but also loans that have not been available for some time, such as auto loans, especially at the regional level.
Pratt did hint that there potential are large creditors, which have been out of the market for some time, that could be planning on coming back in the third quarter of 2017, and if they do put up portfolios for sale, could potentially be selling “billions” of dollars. Such an influx of supply would alter prices dramatically, and would likely cause waves across the marketplace.
“The people who are issuing now are getting more than they are worth in a lot of cases because they are holding all the cards,” Pratt said. “That is where the correction is going to come. That will put everything on a course back to normalcy.”
Again, a special thank you to Bayview Solutions, LLC for sponsoring this article series. Please visit them at www.bvs-llc.net.
