Fasthold Capital Rolls Out Advisory Service for Distressed Mortgages
As the number of sub- and non-performing residential mortgages continue to grow on the balance sheet of banks and other financial institutions nationwide, one of the larger hindrances to a sale of any mortgage pool has been uncertainty over pricing. After all, just what is a troubled mortgage really worth, when the value of the collateral securing it is losing more value by the day? Orange Calif.-based Fasthold Capital, Inc., which specializes in structuring the sale of residential, commercial and consumer loan portfolios, said Tuesday that it had launched a loan advisory service targeting the whole loan trade in distressed mortgages that will try to solve the pricing conundrum that investors say is holding up an increasing number of deals. The service is based on what the company is branding as the Settlement Optimization Process, or SOP. Fasthold said it designed the process in an effort to eliminate common concerns associated with marketing and liquidating distressed assets -- in particular, eradicating any fade in price that might occur from the time an indicative bid is made to the final settlement on a pool of loans. "With the state of the market today, it is important to offer our customers the most effective and efficient means of liquidating their assets," said Michael Castanon, managing partner at Fasthold Capital. "One of the biggest concerns our customers face is not having accurate information or experiencing a reduction in price from bid to settlement." Castanon said that the firm's SOP method "completely erases those concerns." As part of its approach, the company will commit to purchase any or all assets at a stated price to assure the seller that all assets can be traded; Fasthold also performs independent due diligence on loan pools for trade and provides the diligence data to both sellers and qualified principal buyers, as well as providing sellers with an expected settlement range. The company also manages the entire settlement process from start to finish in-house, it said. Sources that spoke with HW thought the idea was intriguing. "Soup-to-nuts advisory in whole loan distressed mortgage trades makes a bunch of sense right now," said one source, a fund manager that asked not to be identified. "The only question I'd have is whether we're talking about a committed sale or not, and of course how the loan-level backstop is priced." In plain English: Fasthold's SOP means that the company will agree to purchase any assets that don't close in a trade at a stated price (the "loan-level backstop"), which makes the question of what price Fasthold commits to a pretty relevant one for any potential seller. "Everything comes down to price on execution," the source said, noting that it's still pretty common for the so-called bid-ask spread -- the difference between what sellers want to get and what buyers want to pay -- to remain wide. Sellers often want more than many buyers feel the loans are worth, while buyers may be attempting to low-ball a seller in an effort to juice returns, he said. Fasthold said it, in part, will look to get around such "ambiguities" in collateral valuation by gathering all due diligence materials independently and providing the data to both seller and buyer, so that each ostensibly is starting from a similar baseline and using the same data to value a loan pool for liquidation. For more information, visit www.fastholdcapital.com.