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Rob Fear , SVP
Client Solutions Group
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You’ve decided to sell some of your mortgage assets. Now what?
Often, this is a very difficult and stressful decision to make in the first place, and sometimes asset sales occur in the least favorable environments, so working with a trusted loan sale advisor or broker is something you should carefully consider to facilitate any complex transaction. Whether you’re considering selling whole loans or servicing rights, MIAC can serve as your experienced partner to help navigate the entire auction process and ultimately close a successful transaction that satisfies all your objectives.
You might wonder why you would need a broker when you could handle a sale yourself. Simply put, a broker adds value to any transaction. Although you’ll always want to generate the highest price possible for any sale, maximizing your portfolio’s sale price is only one of the many responsibilities of a broker. Specifically, there is a great deal of portfolio analysis to do in advance of the offering; qualified bidders need to be lined up; a detailed offering memorandum must be created; a marketing plan needs to be developed and executed; a competitive auction must be orchestrated; detailed investor questions must be answered; and contracts must be negotiated. Using a broker signals to the investment community that you’re serious about completing a deal and you’re not just shopping for indications, which in turn means you’re likely to get stronger bids. Additionally, a broker is working for you to make sure every bidder puts their best foot forward in the auction. It’s usually a lot harder to convince a buyer yourself that your portfolio is worth your goal amount. Generally, a broker inspires trust, because it’s their job to be objective and to manage the sale with the highest level of integrity.
What to Expect From Your Broker
Once you’ve selected a broker, the first step in any potential offering is to obtain an accurate understanding of the market value of the assets you wish to sell. However, before you decide exactly which assets to sell, it’s important to know the value of the overall portfolio. This will help you select an optimal group of assets from within the portfolio, which will provide you with the best execution overall. It’s also important to set a minimum (reserve) price at which you will sell. No one wants surprises when they begin receiving bids on their assets, especially when they could be lower than originally anticipated if a reserve price isn’t carefully set up front.
On the other hand, you might own assets with greater market value than you initially think. It is critical, however, that your broker provides you with an honest opinion of the fair value of your assets at this juncture so you can make a rational decision about moving forward. The bait-and-switch tactic of artificially inflating the value of assets to motivate you to sell, which is regularly employed by some brokers, will in the end leave everyone unhappy and disappointed. In this case, it is detrimental to you as the seller because you might end up selling at a price below what you expected, or you may decide to pull the deal from the market, which means you and everyone else will have wasted their time. Worst yet, you may not be taken seriously the next time you decide to bring assets to market. Clearly, everyone’s interests are best served with a realistic initial valuation.
In addition, your broker should be able to incorporate more and better data to complete the picture. Providing a historical analysis of market trends would be a bare minimum, and your broker should also be able to produce data points that represent actual trades to support the valuation itself while illustrating the current market environment for similar assets. MIAC takes it a step further by introducing information from third party sources that are integrated with our system to supplement your own data. For example, we can establish base loss projections from the Standard & Poors LEVELs model for projecting collateral behavior, or import updated property values from Kroll Factual Data in order to refresh the loan-to-value ratios in your data. All of this timely information enhances the accuracy of the fair value that MIAC provides to each brokerage client, even before certain assets are selected for sale.
At this point, further analysis should be done to assist you in selecting assets for sale. A basic interest rate shock should be performed on your portfolio to understand the sensitivity of its value to a change in the rate environment. Using MIAC’s own sophisticated suite of risk management software, we also can perform non-parallel yield curve shocks (steeper, flatter, or twisted), and also shock any single input parameter that affects the price to gauge its impact on the overall value. MIAC can compute the option-adjusted-spread (OAS) of all your assets, which is the foundation of a rich/cheap analysis that ultimately can be used to assist you in deciding what to sell and what to continue holding in portfolio.
Once the sale selection has been made, it’s time to prepare a formal offering memorandum that includes an overview of your asset’s characteristics, the offering terms, and any additional disclosures. MIAC customizes the structure of each offering to maximize the number of potential bidders as well as the total purchase price. We distribute the offering to a specific group of pre-qualified potential bidders who would have an interest in acquiring these assets, along with the ability and financial resources to close such a transaction. It is important to note that MIAC devotes a tremendous amount of time and effort to continuously search for buyers of various mortgage assets and builds relationships with them. We maintain a database of investors that includes the attributes of asset types these investors specifically want to acquire. This information, combined with our cultivated, trusted relationships, is of great value when trying to find buyers for unique portfolios.
It’s the broker’s job to assist any potential bidder to fully recognize the value of the portfolio being offered. Perhaps there is something exceptional about the historical performance of your portfolio, or the characteristics that distinguish it from many other assets for sale in the marketplace. Either way, MIAC will communicate with every interested bidder to ensure all the details are disclosed completely, because when there is any uncertainty about the information presented, buyers usually take a conservative stance in their bid. Also, MIAC will act as a liaison between you and every potential investor to assertively market the assets while fully and objectively addressing all investor questions prior to the bid date.
After all the bids have been collected, MIAC will sit down with you to review both the quantitative and qualitative aspects of each one. Although the highest price would certainly be very attractive, each bid must be judged on its overall merit such as the ability of the investor to close on schedule, the track record of a particular investor, and any specific conditions attached to the bid. A winning bid is then ultimately selected, the bid letter is executed, MIAC’s expert team assists in the negotiation of the purchase & sale agreement, arranges for due diligence, and works alongside both you and the buyer to transfer the assets and bring the transaction to a close in an efficient and professional manner, all within a specified timeframe.
In conclusion, selling assets involves much more than just soliciting bids. An experienced broker such as MIAC will add tremendous value to the process as a whole, and will give you the highest level of service while representing your interests honestly, fairly and objectively. We’re a team you can trust. Don’t go it alone.