• Investor Login

Treasury’s TARP Pullback Energizes Bulk REO Sales

By Paul Jackson
November 26, 2008

A recent decision by the U.S. Treasury not to invest in purchasing assets from financial institutions via the $700 billion Troubled Asset Relief Program has jump-started the market for bulk REO sales by banks and other institutional sellers, sources suggested to HousingWire on Wednesday.

Ladera Ranch, Calif.-based G8 Capital is one such firm, and said earlier this week that it has closed its 10th portfolio acquisition from a top-five U.S. financial institution, consisting of 88 California REO properties.

“Activity from sellers has increased more than threefold following the Treasury’s announcement last week, with many sellers expressing a desire to close transactions before year end,” said Daryl Schwartz, vice president of acquisitions for G8 Capital. While we haven’t been given permission to disclose the relevant sellers, HousingWire knows of at least four other bulk REO portfolios that have been put out to bid by large servicers in the past week or so.

On Nov. 12, Treasury secretary Henry Paulson announced that government officials had decided against purchasing troubled assets as part of the financial bailout plan, and said that focus going forward would instead be placed on capital purchases where needed as well as funding market interventions where needed to jump-start frozen fixed-income issuance and trading.

G8 Capital, founded last year by former MoneyLine Lending Services CEO Evan Gentry, said it is looking at acquiring more than $500 million in REO and non-performing loan portfolios next year. But it’s far from the only firm that’s seen its fortunes revitalized by the government’s change of heart in asset purchases.

“We have been approached by an ever-increasing number of banks interested in selling REO in bulk, so it is not surprising that several funds have closed deals in that area,” said Jacob Benaroya, managing partner at Rochelle Park, New Jersey-based Biltmore Capital Group, LLC, a bulk buyer and seller of non-performing mortgage portfolios. “Most banks been very tight-lipped about their REO exposure, preferring that potential investors tell them exactly where they are looking, and what price they are willing to pay before even seeing a list of properties.”

That Benaroya is hearing about the jump in bulk REO transactions is telling in and of itself; he says his firm usually doesn’t purchase bank-owned real estate, preferring to avoid the property management business and purchase non-performing mortgage notes, where his firm can work directly with troubled borrowers to keep them in their homes.

“From the initial announcement of the TARP, we have been skeptical that any government money would involve REO, for the political implications — at that point there is no chance of saving the house for the borrower,” Benaroya said.