Relieving Lenders of Their Bad Loans Is Nowadays a Difficult Row to Hoe
FEDERAL WAY, Wash. -- In these troubled times of increasing defaults, rising foreclosures and dropping home values, what, exactly is debt worth these days? It's worth about three cents on the dollar. Even if that's about what the debt of others is worth, it may actually sell for less, but that's the price Sharon Hall, CFO of Ascend United here said was the going rate for buyers looking to scoop up loans and other debt others want to get off their books.
There may be scavengers out there promoting foreclosure bus ride tours that get a lot of media attention, but the business of relieving lenders of bad debts has more than just one purpose. Besides providing relief for credit unions with funds that can be plowed into new services, IT improvements, new branches or build capital, selling debt means not having to spend more money on collection efforts. Usually, when a lender seeks the sale of a bad-loan portfolio, its own efforts have met with less than stellar results.
But selling debt today is a hard sell, it seems. Ascend United, which is a wholly owned subsidiary of the Washington Credit Union League and affiliates, was formed in 2000. "We were formed to help credit unions sell their debt," said Hall. "We deal mostly with mid-size credit unions who aren't in a position to do it for themselves, so we take them through the process."
Hall said that investors and buyers of debt would only look at bigger portfolio amounts, so Ascend United typically pools the debt its CU clients willingly off load. "That's much better for the buyers, who also look for a more diversified loan pool. They prefer that not all the debt be located in just one state," Hall said.
This service "puts a lot of money back into the credit union system and improves the credit union bottom line," she added. According to Hall, Ascend United is the only CU league-operated debt seller in the CU industry.
Lately, Ascend United has been "just trekking along," said Hall. "We're not doing much, but it has sold portfolios of two CUs that were Centrix auto loans." Last fall, Ascend United tried to pool a large portfolio of Centrix loans from as many as 10 CUs, but it never got off the ground when several participants pulled out. Centrix declared bankruptcy and lawsuits between insurers that covered the default risk and other debtors, including CUs, are ongoing.
"The ones who pulled out thought they'd get more from the insurance company than by selling the portfolio," said Hall. "They haven't gotten it yet, and by the time it's all said and done, [the portfolios would] be worthless."
For Hall, the saddest part is that some that walked away initially have tried to sell now but the value is so low, it's not the win for losing it was months ago. "We were getting maybe five cents on the dollar, but now it's more like three. Credit unions that played a waiting game may not recoup as much as they might have," she said.
Ascend United will help any CU sell off its bad loans to help avoid a total write-off, Hall said. "We deal with any type of charge off, including negative share drafts. We can also sell performing loans and bankruptcies. Some credit unions have come to us to sell indirect loans after they found those borrowers would not become true members who used other services."
Buyers are now interested in indirect auto loans because they still have some collateral value. Not on the ticket right now is credit card debt.