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Nonperforming Loan Market Still Not Performing

NEW YORK CITY-Despite a dearth of buying opportunities thus far in the cycle, investors expect the market to improve sometime this year, says E&Y.

By Paul Bubny | Updated on April 12, 2010

NEW YORK CITY-Most would-be investors in distressed debt think the market for such debt hasn’t gotten up to speed, with 76% of respondents to an Ernst & Young survey saying the market is “still developing” and another 13% opining that it hasn’t even begun. So it stands to reason that while all respondents to the E&Y survey did due diligence on nonperforming loan portfolios during 2009, fewer than 17.5% actually completed a purchase.

The reason: there wasn’t enough distress to go around, writes E&Y’s Mark Grinis and Christopher Seyfarth in a report released Monday. “Up until now, most, but not all, banks have not been engaged in selling distressed loans,” leaving the FDIC to take the lead, according to the report.

“The question on everyone’s mind today is whether the US distressed loan market in 2010 and 2011 will be the same as ’09, characterized chiefly by buyers waiting for sellers to turn up and transact,” says Grinis, leader of E&Y’s real estate distress services group, in a release. Seyfarth, a partner in the E&Y group, tells GlobeSt.com, “It takes two to tango. Investors are all dressed up and they’re ready to dance, but the lenders never showed up to the party, and the biggest reason is that the pricing didn’t work for them.”

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