I just returned from speaking at IMN’s East Coast NPLs, Notes, and Default Servicing Forum in Fort Lauderdale, Florida and my mind is racing. It’s always a treat to hear what other fund managers, servicers, and investors are seeing in the marketplace. Whenever I come back from these conferences, I tend to by energized by the possibilities.
The subject of the panel discussion that I served on was “Tail Investments.” That is such an odd term, but it’s a term that those that are wanting to dip their toes into the nonperforming loan market should get comfortable with. It will be their life blood for new deals.
When larger funds and investors buy large portfolios, they work to bring resolution to every loan that they can inside of the portfolio. If the borrower is not paying, the loan is considered “nonperforming” and it’s important for the fund servicers to do all they can to bring some sort of resolution to the issue. If they can get the borrower to start making payments as agreed, they loan is then reperforming. There is always those handful of loans at the end of the day that they can not bring a resolution to. These loans collectively are called “The Tail” of the portfolio.
Larger funds will often dramatically mark down the purchase price of the loans and attempt to sell them so they can move on to other projects. Here is the opportunity for smaller nonperforming loan investors. If you do your due diligence well, you can find some diamonds in the rough in the Tail of someone else’s portfolio.
For years, we’ve been a leader in the nonperforming loan industry in the US. We wouldn’t have gotten there without understanding the ins and outs of Tail Investments. Perhaps you might want to consider doing the same.