Published on 11/12/2020 on Creditvillage.news
The world of debt collection and the world of real estate have always been very connected to each other, in Italy in particular. In our banking history, the real estate guarantee is considered the most traditional and comfortable guarantee for the lender. The provision of mortgage credit is directly functional to our entire economy: buying a property is the easiest way to obtain a loan. Sometimes even in a pretext way: often the notary bank does not take into account some side effects such as the precariousness of income (private), the instrumentality of the asset (companies) and the fluctuation of the real estate market (all); in this way, the risk of default goes beyond the certainty with which the credit was granted, in the name of a guarantee that often betrays expectations.
It goes without saying that in cases of default of positions, the enforcement of the real estate guarantee becomes the first thing to do, and it is therefore clear that although the NPL issue is relatively young, the management of mortgaged properties should be consolidated practice for credit institutions.
Yet this is not the case. Up until 10-15 years ago, the requalification of real estate collateral was an almost unknown subject within the credit recovery/bad loans departments and left to the initiative of the most enterprising operators. With the current vision it seems obvious, but until then there was no widespread awareness of the enhancement of properties in order to optimize recoveries.
The current scenario of credit recovery has changed and evolved to such an extent that the previous one is unrecognizable. Today the actors are highly specialized, often saying “mortgage” or “unsecured” is not enough to describe the activity of a servicer. There are a number of clusters such as asset class, borrower category, size and business model that make the activity of a specialized operator highly recognizable (sometimes unique) and determine its recognition on the market.If before the NPL market was similar to a wholesale market, now it looks more like an agglomeration of craft shops where different approaches to work can be seen inside. In short, a mature market.
A market so mature that it can open itself with awareness to the outside, to investors and operators of the same asset class. In the case of Real Estate, this is a great opportunity. There are many traditional operators looking for opportunities that the NPL/UTP world can convey. The servicer therefore acts as a business originator towards the market and through its specific skills is able to support the partner if necessary in all those activities that for the traditional real estate developer are not considered central: the combination is often a winner for both.
The traditional case is that of real estate development from scratch: the involvement of a specialized actor can optimize internal resources and outsource most of the risks associated with a non-central activity. There is a big difference between saying and doing: everyone talks about bad loans, even outside our market, but few are able to handle them and understand the dynamics of these positions.
For example, many real estate developers, even experienced ones, confuse ownership of a mortgage loan with ownership of a property. How important is the expertise of a specialized servicer? Conversely, how many opportunities can a mortgage servicer lose just because they lack the time, structure and funds to value a collateral?
It should always be remembered, in spite of a common belief, that the activity of debt collection and the requalification of the underlying guarantees are by no means counter-cyclical activities; they simply place themselves immediately after the traditional economic cycle, with the same aims and the same actors. To understand this, the main objective of a property developer is the realization of their activities by selling them to the end user (the best possible payer); this goal is perfectly aligned with that of the NPL/UTP market, in which the operator finds his economic satisfaction. In this context of aligned objectives, players in the real estate and debt collection markets can forge profitable alliances.
Finally, it must be emphasized that in a cyclical context of profitable activities, a positive economic flywheel is created for many other subjects: suppliers, technicians, agencies, operators in the real estate sector generally find the possibility of producing work and income generating induced activities for community of reference. There is also an indirect beneficial effect typical of the enhancement of NPL/UTP guarantees:
often the stalemate resulting from the failure of the debtors involved creates a situation of degradation which in some striking cases has an impact on entire areas, neighborhoods, cities. Consequently, the restoration of these situations produces indirect effects that are often not calculable a priori but no less important.
As an example, let’s think what the restoration of a decaying building could mean for a residential area, perhaps in the meantime also occupied or become a center of opaque activities, or even simply for a condominium, the arrival of a good payer who goes to restore a situation of arrears typically borne jointly by all condominiums.
The indispensable condition for forming alliances and collaborations between the real estate world and the debt collection world is that both actors work in watertight compartments and that their activities do not interfere. Respect for reciprocal roles will prevent overlaps in the distribution of tasks and profits, resulting in greater efficiency in the work performed and a better result for the benefit of all.