Firms Race to Build a Marketplace for Whole Loan Trades

(Update 1: corrects auction amount attributed to BigBidder.com) Early entrants are rushing into the business of facilitating the trade of distressed residential real-estate debt, as the number of troubled real estate loans continues to grow. While the space remains largely in its infancy, the firms trying to build a market for note trading say they hope the current crisis can help spur a more transparent marketplace for buying and selling whole loans. One such outfit, Irvine, Calif.-based LoanMarket.NET, said Tuesday that it had launched its online marketplace for buying and selling real estate-secured note investments. “The market for buying individual mortgage notes from originating lenders has traditionally been available only to investors such as Wall Street investment banks, large hedge funds, and regional banks,” said LoanMarket.NET founder and president Jeff Freud, a 20-year real estate and mortgage industry veteran. “Now small institutions and sophisticated individual investors, such as those who have traditionally invested in other debt instruments, can gain access to these income-generating notes, collecting principal and interest payments just as the former lender did for the remaining term of the loan or until a refinance or sale occurs.” The new website uses slick technology to help investors understand what they’re purchasing, including providing a current market value (CMV) estimate and a photo of the underlying property pulled within 14 days of posting, the company says. Any real estate notes listed for sale on the site also include all vital loan documentation such as the Note, the Deed of Trust, the Title Policy and evidence of homeowner’s insurance, the company said. It’s a potentially huge market for the firms that can figure out how to properly tap into it. Of course, the challenge is enticing sellers to consistently place their notes on the platform for sale, something that as of yet remains a large unknown for anyone looking to build a marketplace for distressed notes. “I get calls all day long from people claiming to have something to sell me,” said one fund manager that specializes in distressed whole loan purchases. “Most of the time, it’s hot air, a guy that’s brokering some tape he doesn’t own. I’d love to see an online marketplace that bring viable assets to market, but my first question will be how that firm is vetting potential sellers.” Another firm, Newport Beach, Calif.-based The LFC Group of Companies, rolled out an online note auctioning platform called BigBidder.com in mid-March; the company’s website says that the platform offers $39.8 million in available notes up for auction, but it’s unclear who the sellers are. That’s not to say establishing an online marketplace for debt can’t be done — Boston-based DebtX, Inc. has a well-established platform for distressed debt exchange in commercial real estate notes, and holds multi-year contracts to sell distressed debt for the Federal Deposit Insurance Corp. and the U.S. Department of Housing and Urban Development. The exchange has managed the sale of well over $1 billion in CRE debt over the past 12 months, because of its relationships with viable sellers. While the DebtX platform has traditionally focused on a wide range of performing and non-performing loans secured by multifamily real estate, retail, office, industrial, assisted living and business assets, the company has recently managed transactions involving residential notes as well. Visit LoanMarket.NET on the web, as well as BigBidder.com and DebtX. Write to Paul Jackson at [email protected].