Despite the number of blockchain real estate projects underway, few have dared to venture into non-performing mortgages. However, such investments have historically brought in above-average returns. Moreover, there is the security of holding the most senior position in the capital stack.
Using Blockchain to Provide Liquidity to Non-performing Assets
Blockchain investments use in the acquisition and management of distressed mortgages is a reality. This could be a revolutionary use of the technology as non-performing mortgages can be sold at a discount by financial institutions that are eager to get rid of them.
So-called vultures in business have been buying up assets including soured mortgage loans for years, but they have no desire of buying and holding on to these assets. Most investors believe that homes tend to lose their value as time goes by. So, they are placing their faith in their interpretation of where the economic winds will blow to determine liquidity.
At the moment, banking institutions are hideously understaffed to manage loans. So the vultures buy in bulk, at times buying several hundred credits at a go. The sellers, who in this case also include other distressed asset investors, prefer to unload these assets as quickly as possible. As a result, they avoid foreclosing or modifying them.
Blockchain technology can facilitate the management and monetization of these assets with ease. In fact, there are many methods to guarantee sales. For instance, the fund can sell the assets singularly or in a combination of assets. Also, the fund can modify these loans, with foreclosure, refinancing, and deficiency judgments.
Setting the Bid Price for Targeted Loans
There are blockchain-based companies that are already applying blockchain for illiquid assets. For example, Resolute.Fund which is run by a team of professionals who have invested into more than 100 properties in the US alone, worth $1 Billion. Resolute.Fund is a traditional private equity fund applying innovative tech to invest in a diversified portfolio made up of mortgage debt.
One of the key factors that guarantees a return on investment for this particular blockchain real estate fund is the intense focus on setting the appropriate price of mortgages. They do this by acquiring assets that are priced at a significant discount on the loan’s Unpaid Principal Balance. Afterward, the firm undertakes a comprehensive underwriting of the asset. As a result, the actual value of the asset will be uncovered and helps to set the bid price for the targeted loans.
Moreover, a significant advantage is the fact that the firm comprises of a team that has built strong and longstanding relationships with firms that already have these assets in their portfolio. Indeed this advantage would come in handy when it comes to negotiating a favorable price.
Why Should You Care About This Blockchain Real Estate Application?
Recently, Resolute.Fund announced that their first offering would be launching at the end of May. If successful, this could be the first step in a series of events that could bring sanity to the opaque world of distressed debt.