COVID-19 Impact on Scratch and Dent – Last blog in March 2020 discussed the outlook of the scratch and dent industry or whole loan trading industry. In mid-March, the outlook on scratch and dent pricing was still strong. Scratch and dent bids or whole loan trading bids were at all-time high averages.
COVID Impact on Scratch and Dent:
However, things have changed quite a bit over the last 2 months. The COVID-19 pandemic has changed the current landscape as all buyers have been affected. All scratch and dent buyers or whole loan trading buyers have made changes to their platform. On the extreme side of things, Right House Capital has seen a few buyers suspend all scratch and dent activity. Other buyers have made changes to their appetite on what loans they want to purchase. Those buyers have added overlays to protect against mortgage delinquency and mortgage forbearance. With regards to overlays, buyers added protection with higher minimum FICO scores, lowered maximum DTI’s and LTV’s, requiring perfect mortgage pay history and geographical restrictions on COVID-19 hotbeds.
These changes have produced multiple restrictions on receiving the all-time high bid averages just seen a few months ago. One silver lining in the whole loan trading niche is that if a scratch and dent loan, investor fall-out loan, non-QM loan, jumbo loan, re-performing loan, sub-performing loan, non-performing loan or any other unsaleable loan does fit buyers current appetite the bids have remained relatively constant. This observation is due to buyer pricing models remaining similar to pre-COVID. Therefore, if a loan does fit a buyer’s appetite, the mortgage provider is receiving a quality bid for liquidation.
COVID-19 Impact on Scratch and Dent – Right House Capital recommends our clients to continue to market their unsaleable loans and not let them stack up. RHC will then advise our customers on where the bid falls in relation to pre-COVID averages. Following this plan will still allow mortgage providers liquidation of their unsaleable loans if quality pricing exists. And if not it will give a starting point to compare with future prices.
Whether a mortgage provider is in need of liquidation or just checking on current market pricing, Right House Capital is here to support your needs.
For more information or if you have any problem loans in your pipeline, contact Andrew Zale.