NEW YORK (Reuters) - Wall Street firms in coming weeks will likely package delinquent loans into securities as a way to satisfy the higher yields demanded by investors, Jon Daurio, chief executive officer of distressed loan buyer Kondaur Capital Corp, said on Monday.
Creating residential mortgage-backed securities with “non-performing” loans would be the latest incarnation of a market that has been mostly dormant since the credit crisis sidelined issuers. Over the past year there have been a handful of bonds backed by existing mortgages, and just one supported by fresh loans.
“I’m being solicited heavily to securitize my stuff,” Daurio told reporters in New York after a panel sponsored by the Mortgage Bankers Association.
Daurio’s Kondaur Capital is one of the largest buyers of U.S. non-performing loans. After acquiring the loans, the company works with borrowers to get mortgage payments current, or initiates other processes — such as deeds-in-lieu of foreclosure — to seize the property.
Securitization of non-performing loans may be most important to the investors who in recent months have been willing to accept lower-quality assets in return for greater yield. Some of these RMBS and other risky assets have faltered lately, as expanded fallout from Europe’s sovereign debt crisis has caused investors to reassess risks they had taken on expectations the U.S. economy was on the mend.
Even so, Daurio said during the panel discussion that securities backed by non-performing loans would appear by the end of June.
Redwood Trust (RWT.N), a California real estate investment trust, last month sold a $222.4 million mortgage bond backed by newly created loans. More deals of its kind would aid the housing market by giving lenders confidence they can find buyers for their loans.
Editing by Dan Grebler