Mortgage giants shop $250 billion in loans

A number of large corporate banks are beginning to contemplate selling off their under performing mortgages, which value roughly $250 billion worth of family switch and first time buyer mortgage product, into the open market.

Whose bankers with investments who play in the nonperforming loan market say quiet sales have begun on Wall Street firms and several hedge funds about how they might unload their bad assets. The buyers would presumably be hedge funds and investment partnerships with certain Wall Street business banks, Goldman Sachs and Morgan Stanley — acting as middlemen.

“There’s been lots of meetings and they’re talking to a lot of people about it,” said one veteran investment banker, requesting his name not be used because of the sensitivity of the matter, “but they’re a long way away from doing anything yet.”

One idea the two are said to be contemplating involves the securitization of NPLs. The GSEs would hire third-party vendors to gather broker price opinions on the properties collateralizing the mortgages. Fannie and Freddie might then issue a security backed by the NPLs based on the new BPO value. “If they could get 80% of the current BPO value they’d be ecstatic,” said one investment banker.

Both GSEs declined to comment for this column. To date, neither has tapped the NPL market but they’ve “force-placed” the servicing of delinquent loans away from certain seller/servicers to specialists such as Ocwen and Nationstar. Both continue to sell single-family properties out of their REO portfolios, offering homes both to owner-occupants and investors.