Monday, January 31, 2011

Paying It Forward: Some Hopeful Signs for Failed Bank Borrowers



Tom Barrack appeared on Bloomberg Television last week to discuss Colony Capital's latest successful bid on two FDIC failed bank loan portfolios totaling $820 million in residential and commercial mortgages. Based on the FDIC's disclosure, the total amount Colony has purchased from FDIC through the structured sales program has reached nearly $3.7 billion:

Date Sold
Loan Type
Quality
No. of Loans
Book Value
(Millions)
Price/
Book
1/7/2010
Commercial Real Estate
Sub/Non-performing
1,184
$1,028
44.70%
7/2/2010
Commercial Real Estate
Sub/Non-performing
1,660
$1,849
59.90%
Announced, Not Closed
Residential and Commercial Real Estate
Sub/Non-performing
1,505
$817
23.60%
Total


4,349
$3,694
47.64%




In the interview Barrack manages investor expectations about just how tough these loan portfolios will be to work through:


"The reason that most people don't like these is that there's no income in
the meantime. It's not as though you're buying a loan and the loan is paying
you a coupon that just happens to be under-yielding. Just about everybody
stops paying, so every transaction is a workout."



"As a buyer, it's an ongoing business. You don't know. There's not a quick
spin here. You won't know how you really did until you resolve the last 10%
of that portfolio and that can either be 18 months or 36 months."



Barrack also identified Colony's possible approach to workouts that may give some hope to borrowers who have endured months of lender radio silence.  He seems to indicate that workouts and debt restructuring are at least a possibility.