Bids Make Good Cents to RTC Auction-Goers
IN a Kansas City, Mo., convention center on May 10 and 11, Joel Rabinowitz will compete with about 150 other bidders to buy loans, many worth only cents on the dollar.
Buying a real estate loan for which payments stopped several years ago may not sound like a good investment. But if Mr. Rabinowitz figures he can get the borrower to start payments again, he will buy the loan.
Rabinowitz, a partner at Twelfth RMA Partners LP in New Rochelle, N.Y., estimates that his firm has gotten a 20 percent return on its purchases from the Resolution Trust Corporation (RTC), the government agency charged with salvaging failed thrifts and selling their assets.
The Kansas City auction of $350 million in loans will be the second to last for the RTC. The agency has held six of seven national auctions in that city. (It has also held regional auctions.) More than 7,500 loans will be grouped geographically and sold as packages.
With a wide range of loans -- consumer, residential, business, and commercial real estate, some with interest or principal being paid (performing), some not -- the RTC hopes to get about 55 percent of book value.
While performing residential mortgages will probably bring in more than 80 percent of book value, many unsecured and consumer loans can be bought for cents on the dollar, says Jane Jankowski, an RTC spokeswoman.
Before an auction, potential investors examine loan documents to meet the ''due diligence'' requirement. Since the RTC's first auction in 1992, the entire process has become ''pretty streamlined,'' Ms. Jankowski says. Instead of ''hauling out box after box'' of documents, investors can now review paperwork on computer.
As with past auctions, Rabinowitz says his company will look for real estate and consumer loans, for anywhere from 2 cents up to 80 cents on the dollar.
Then comes the hard part: ''We try to work with the borrower to get it performing.'' Twelfth RMA Partners resells some of its purchases to companies looking for specific kinds of loans -- for example, real estate in Arizona.
(Bidding information is available from First Financial Auction Network at 1-800-370-9057.)