Challenges In Buying Distressed Mortgage Loans

Real Estate

The market for non-performing and underperforming mortgage loans has been increasingly active and the level of activity is likely to continue as banks and other institutional holders seek to unload illiquid assets and redeploy their capital.

Sales of distressed debt are typically at a discount. The discount pricing allows the sellers to press for a disposition with "no strings attached." If the sellers and their selling advisers are skillful, they can also create competition among prospective buyers and time pressure to act before the opportunity to get a bargain is lost. The upside of an opportunistic and discounted loan purchase can be attractive, but because of the potential downside risks-the risk of buying into someone else's nightmare (or a nightmare that someone else was not even aware of)-it is crucial for buyers to gather and evaluate as much information as possible about what is being offered for sale.