Sharpen Bids On Distressed Loan Pools with Geospatial Property Analytics

Written By CAPE Analytics

Introduction

To learn how property analytics solutions can help you grow your business and improve your RPL and NPL trading strategies, request a demo at capeanalytics.com or reach out to edward.cohen@capeanalytics.com or sean@capeanalytics.com.

In 2022, a new generation of property analytics technologies could prove crucial to distressed loan traders hunting for bargains in a residential real estate market that is just starting to cool off from its 10-year bull run.

Even with COVID relief programs expired, the number of distressed loans remain historically low, though they did rise to 2.9% of all mortgages in June, according to the latest data from Black Knight. And while servicers do expect a spike in distressed mortgage activity relative to what has been seen during the pandemic, inventories are likely to be on the smaller side.

Bottom line: You can expect a growing number of large sales of re-performing and non-performing loans in the year ahead, though overall numbers will remain low. The most recent set of Fannie pools, FNMA 2022-RPL4, were just released and have a bid date of September 8th, 2022.

For traders interested in this pool, you can expect increased competition. For the savviest traders, the most decisive question relates to the makeup of current distressed mortgages.

The Key Question: Why?

Think about it. With home prices having skyrocketed over the last few years, why wouldn’t a homeowner simply sell the property at a profit?

Over the near term, it’s very likely the makeup of these RPL/NPL pools are heavily weighted with outliers that have underperformed in terms of home price appreciation.

These borrowers are unlikely to be able to exit via short sale or meet new loan terms, reducing the chance of resale in re-performing loan (RPL) markets. The property is also likely to require costly renovations—reducing the economics of a timely and profitable REO sale.

To be successful, distressed loan traders must find ways to enhance their ability to make profitable buy and sell decisions quickly and to eventually identify the best disposition for each loan.

That means property condition should be one of the most important considerations traders take into account in transaction decisions. But quickly gaining an accurate understanding of condition at a cost that makes sense in today’s market? For many, that can be easier said than done.

Property Analytics: Looking Beyond the BPO

Here’s what we mean: Getting eyes on the property is key to properly assessing condition. But traditionally, that has meant a reliance on costly, inaccurate BPOs.

Among other issues, the “drive-by” inspections and images provided by these services are typically limited to the view from the street, do not capture the entire parce. In addition, the quality control of these inspections is all over the map.

Sure, some will use Google or Zillow to view commercially-available satellite imagery, which may at least give them an idea of whether the property is next to a landfill, or the distance to a freeway. The problem: These images may not have been updated in 18 months or longer, limiting (or even erasing) their value.

For traders, geospatial property analytics is proving to be a better option. Today’s most robust solutions leverage high-resolution aerial imagery and computer vision to deliver up-to-date property condition data on more than 100 million unique properties nationwide.

With these solutions, traders gain a high-fidelity understanding of high-volume flow trades as well as bulk trades in the thousands of properties. And not in days or weeks, mind you. I’m talking delivery via API in mere seconds, at a fraction of the cost of a BPO. This intel can also augment traditional resources with unique insights that provide considerable lift to valuation and pricing models.

For some, it could make all the difference in expediting the due diligence process, zeroing in on the best properties, and weeding out the most egregious outliers—whatever the end of 2022 throws our way.

5 Minute Read