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DebtX Will Auction RMBS Online for the FDIC
BOSTON, 08/06/2002
By Michael Murray
DebtX, Boston, Mass., announces today that it will auction $198 million involving nearly 4,000 residential real estate loans on its electronic loan platform for the Federal Deposit Insurance Co. (FDIC) on September 12.
The FDIC portfolio of Residential Mortgage Backed Securities (RMBS) consists of a performing pool and a non-performing pool of loans for one- to four family homes taken over by the FDIC from the Resolution Trust Corp. (RTC). The loans were securitized in 1995.
The live online auction can work with all classes of debt and allows buyers and sellers to engage in a live interactive bidding for the assets, said DebtX CEO Kingsley Greenland.
"Arguably, that increases the proceeds to the seller," Greenland said, adding the buyer's behavior has the potential to be more aggressive in a live online auction.
But the live online auction could also benefit the buyer because the buyer is able to see the "cover bid" or next bid to determine whether a bid is aggressive or not relative to the market. Still, there are also silent online auctions and, depending on the type of loan, one type could be more advantageous than the other.
Greenland said that performing loans put into homogeneous packages fit better for the live auction. He said that sealed bids, also done by DebtX online, are better for non-performing loans since one investor might bid more than everyone else, which would not be the case with transparency.
DebtX works with seasoned loans that have been in a portfolio for longer amounts of time, as opposed to the Precept Corp.'s online auction that bids for loan originations in the commercial real estate primary market. DebtX clients are primarily commercial banks, but also include Wall Street firms, commercial finance firms, insurance companies and the FDIC.
"With the exception of the FDIC, we generally have longer term relationships with the sellers," Greenland said. "It's harder to do [the exchange] offline the way we do it because we're generally dealing in more illiquid assets."
The seasoned loans tend to have more variables and a different underwriting process as opposed to the primary market loans with more transparency and a more defined marketplace, according to Greenland.
Last June, DebtX announced a $700 million commercial real estate auction with Insignia/ESG on a Small Business Administration (SBA) portfolio for December 3.
But the online trading exchange is not a unique phenomenon in the mortgage industry. Ultraprise Corp. and Pedestal Inc. had been pioneers in online trading during the emergence of dot-coms. But both companies failed to achieve profitability and Ultraprise is now out of business.
The online auction, however, is "pure technology" and one of the problems with online trading exchanges has been that buyers and sellers used the Internet to find loan prices and complete the deals offline without paying the electronic intermediary.
But Greenland pointed out that DebtX does not find the same offline problem with the commercial real estate loans that are bid and sold even though DebtX has been starting to exchange residential loans since about eight months ago when its clients had been beginning to push residential products through them.
"Our sweet spot has been commercial real estate," Greenland said. "In fact, we do more business in areas where there is less liquidity than in areas where there is more liquidity. Our mantra is that we're all about creating liquidity."
Still, DebtX does not claim to be a technology company but a marketplace with employees behind the scenes to move the transaction along. DebtX was created more than two years ago through Debt Exchange Inc.
"We didn't simply build a marketplace," Greenland said. "We have been supporting it heavily throughout."
From Mortgage Bankers Association of America
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