Did you know that non-performing mortgage loans, also known as NPLs (Non-Performing Loans), can be transformed into a lucrative investment opportunity?
In this article, you’ll find out all about the business of non-performing mortgage loans, how they are managed and the opportunities they present for investors.
What are Non-Performing Mortgage Loans (NPLs)?
Definition and Context
Defaulted mortgage loans are those where the borrower has failed to make scheduled payments.
Generally, a loan is considered to fall into this category after 90 days without payments.
These loans represent a significant challenge for financial institutions as they negatively affect their balance sheets and profitability.
Global and National Statistics
Global Volume of NPLs
Worldwide, the volume of NPLs is considerable.
In Europe, NPLs amount to approximately €361 billion.
According to the European Banking Authority (EBA), Spain is in second place with a stock of €79 billion, representing 21% of total NPLs in Europe.
France leads the list with 115.5 billion euros, followed by Italy (43.4 billion euros) and Germany (33.6 billion euros).
Situation in Spain
In Spain, the volume of non-performing loans amounted to EUR 76.7 billion in the first half of 2023.
This figure represents a slight year-on-year decrease of 3% from the 78.9 billion recorded in the second quarter of 2022.
However, there was a quarterly increase of 2%, equivalent to €1.3 billion.
The household delinquency sector accounts for most of the NPL portfolio in Spain, amounting to €45 billion, of which €21.7 billion comes from mortgages.
This trend shows a slight decrease in mortgage NPLs year-on-year of 5%, although it has grown by 3% compared to the previous quarter.
Source of statistics: idealista.
Why Invest in NPLs?
Benefits of Investing in NPLs
- Significant Discounts: NPLs are sold at a significantly reduced price compared to their face value, allowing investors to purchase them at a deep discount.
- High Potential Returns: By acquiring NPLs at a discount, investors can earn high returns, either by recovering the debt or by selling underlying assets.
- Portfolio Diversification: Investing in NPLs allows investors to diversify their portfolio, reducing dependence on traditional markets.
Success Stories
A notable example is the purchase of NPLs by specialized investment funds and debt managers in Spain, such as SAI Capital, which have managed to recover significant amounts of capital and generate high returns for their investors.
NPL Investment Process
Identification and Acquisition
- Analysis and Due Diligence: Investors should conduct a thorough analysis of the NPL portfolio, assessing the value of the underlying assets and the recoverability of the debt.
- Negotiation and Purchase: Once an attractive portfolio has been identified, purchase terms are negotiated, often resulting in the acquisition of NPLs at greatly reduced prices.
Debt Management and Recovery
- Negotiation with debtors: In many cases, negotiating with debtors can lead to payment agreements that allow recovery of part or all of the debt.
- Foreclosure: If an agreement cannot be reached, foreclosure may proceed, recovering the value of the loan through the sale of the property at auction.
- Sale of Assets: Recovered assets can be sold in the market, generating additional income for investors.
Strategies to Maximize Profit from NPLs
Diversification of the NPL Portfolio
Diversifying the NPL portfolio is essential to mitigate risk.
By acquiring NPLs from different property types and geographic locations, investors can balance risk and maximize returns.
Use of Technology and Data Analysis
Technology and data analytics play a crucial role in NPL management.
Advanced tools make it possible to accurately assess the value of assets and predict the probability of debt recovery.
NPL Investment Challenges
Regulations and Compliance
The regulatory framework is complex and varies from country to country.
Investors must ensure that they comply with all local and international regulations to avoid penalties and legal problems.
Market Risk
The NPL market can be volatile and is subject to economic and political changes.
Investors should be prepared to manage these risks and adapt their strategies as necessary.
Case Study: Tokeniza Real Estate
At Tokeniza Real Estate, we have democratized access to NPL investment through blockchain technology.
Our platform allows investors to buy fractions of NPLs, diversifying their investments and accessing opportunities that were previously only available to large financial institutions.
How It Works
- Platform Registration: Investors register on our platform and select the NPLs in which they wish to invest.
- Token Purchase: By purchasing tokens, investors acquire a fraction of the NPLs.
- Management and Benefits: Tokeniza Real Estate is in charge of managing the NPLs, providing continuous updates and distributing the benefits obtained.
Conclusion
Investing in NPLs offers a unique opportunity to diversify the portfolio and obtain high returns.
Through blockchain technology, Tokeniza Real Estate facilitates access to this market, allowing investors to participate in the management and debt recovery of defaulted mortgage loans.
If you are interested in exploring this opportunity and becoming part of our investment community, register on our platform or schedule a meeting to find out how you can generate passive income by tokenizing NPLs.
Want to know if you can invest in our NPLs?
Fill in the form and download our detailed investor guide.
