For those in the NY area or familiar with the Sig Bank portfolio that was sold in 2023, whats the issue with Rialto and the borrowers? Hearing that alot of loans got thrown into default status for no legit reason, Rialto charging massive default interest rates and fees on top of principal balance? Are these borrowers screwed or planning to negotiate all of these extra costs at payoff?
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Its not just Rialto. Lots of banks that took over those loans are pursuing foreclosures and defaults now. Signature originated some pretty crappy loans. Rent stabilized garbage at higher leverage. Numerous borrowers were about to default while even under Signature but rates were low enough. The rate increases made none of these deals underwrite. Lenders have stopped kicking the can down the road. Borrower's are screwed here.
They went aggressive in Covid because they werent winning. They originated a bunch of rent stabilized deals on low rates (sub 4%) at 75% LTV. They began floating in 2024 for a lot of deals at treasury + 250. So thats a 7% rate now. Not to mention that rent stabilized rent growth was non-existent because the city didn't allow much increases. Now you have numerous loans with over 100% LTV and a DSCR of less than 1.
I mean, lets be careful with "no legit reason".
It's probably more accurate to say that most borrowers expect and demand a certain degree of leniency in meeting their contractual obligations, whether because they've gotten accustomed to being allowed to pay their mortgages late or because they didn't actually do their diligence in negotiating deal terms they never thought would trigger a default (like notice periods, etc). Rialto, and most lenders, are well within their rights to trigger defaults for ticky tack reasons. After all, if the borrowers were capable of curing, they would - anyone complaining about how they're being defaulted upon has a very clear path out of that and we should always question the motives of someone complaining about their lender foreclosing. There is almost no question that any lender would prefer to be paid off than foreclose, because it's time consuming and expensive to go that route and any borrower who had a technical default but is willing to pay up is almost certainly going to be allowed to do that by a judge.
Don't want to pay expensive default rates? Don't default. These are idiot, greedy borrowers who don't want to dip into pocket to pay their lenders, but also refuse to face the consequences of their own stupidity and greed. I'd be immediately suspicious and unwilling to do business in any capacity with someone complaining about a foreclosure proceeding.
^ this
I’m just wondering at what point some of these 2021 and 2022 vintage bridge loas nstart selling to distressed debt investors like Rialto. Some of these bridge lenders, like Ready Cap and MF1 seem to be avoiding foreclosure by any means possible and there is a lot of paper in default (or should be in default) sitting out there. If these lenders aren’t willing to foreclose their only exit is selling the paper and once Rialto or some other grim reaper gets a hold of these notes, these sunbelt borrowers are gonna find themselves in the same situation as these Sig bank borrowers.
There have been multiple loans sold on market but no where near what I expected. These funds, including rialto, are playing weird games where they are restructuring the loan and transferring between funds to offset heavy losses in a specific funds. So effectively they are selling it to themselves for a discount but probably not as bad as what you would see in the market and trying to extend away some risk.
I saw a loan ~50MM that had like a 10% rate (floating), where they required paydown from Sponsor of ~5MM, and they turned it into a fixed rate loan at 85% LTV at a 6% rate late last year. Better than agency pricing. That loss has to go somewhere.
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