10 cents on the euro

Hijpo

Hi all,

Obviously im not a finance person and appologies if its the wrong forum but in laymans terms can someone please explain to me why loan management companies would sell a portfolio of loans?

What advantages are there and in whos favour is the advantage?
Why would anyone want to buy a portfolio of loans in the first place?
Especially loans which are more than likely have strong potential to fall/already are into arrears.

Any additional info/sources would be appreciated

Ardeehey

If you have outstanding loans on your book work €100 and you think that between defaults, time spent chasing people, costs associated with legal actions etc you think, feck it, I'm going to sell it to a factor or company who specialise in this type of business and take the 10 quid that they are offering for it, better than wasting all of my time trying to get back an unknown amount.

Factors or collection agencies specialise in this type of recovery and will have dedicated teams, they will likely recover €20-€50 of the debt and that way make money for themselves.

Hijpo

So ultimatley you are now paying it back to the new owner of the portfolio instead of the original loan management company and have no dealings with the origional loan company?

Ardeehey

That would be the normal run of it yes, companies/banks will sell groups of loans to speculators (securitisation) at a discount and those speculators will act as a factoring company or maybe just hold on to them and take whatever repayments come over the life of the loans. The original loaning company have no washed their hands of it.....unless they sold with recourse....this is where they would sell the loans but if the buying company fail to make an agreed upon return on the loans then they could go back to the original company for compensation......this would generally have nothing to do with the person/firm who took out the loan in the first place though.


Sorry a little wordy!!

Hijpo

Ardeehey wrote: »

That would be the normal run of it yes, companies/banks will sell groups of loans to speculators (securitisation) at a discount and those speculators will act as a factoring company or maybe just hold on to them and take whatever repayments come over the life of the loans. The original loaning company have no washed their hands of it.....unless they sold with recourse....this is where they would sell the loans but if the buying company fail to make an agreed upon return on the loans then they could go back to the original company for compensation......this would generally have nothing to do with the person/firm who took out the loan in the first place though.


Sorry a little wordy!!

Thanks alot.

great explanation, much appreciated!