Bottom Feeders Show Growing Interest in Non-Performing Loan Market.(Hanover Capital Mortgage Holdings Inc.)

While there are a lot of investors in the current market along the entire performance continuum of the single-family residential market, "there are a lot more people that are (now particularly) seeking out nonperforming and subperforming loans for purchase," said Joyce Mizerak, president of Hanover Capital Partners Ltd., Edison, New Jersey.

With investors' increased interest in this market, "our desk would say that the prices of subperforming and nonperforming loans have gone up, probably over the last six months," said Ms. Mizerak, whose company is a loan sales advisor and seller of loan packages for secondary market investors.

"In general, the spreads are tightening up on that stuff, and until there is a change in the balance of supply and demand, I think ...(the increase in the buying of these loans) is going to go on for a while. Until the level of nonperforming loans really picks up. ... Then there will be less money chasing more assets," she said.

Steven P. Cohen, a managing director with Nautilus Capital LLC, Greenville, S.C., added, "We have seen a lot of nonperforming pools in the last month or so and those are coming from banks that are starting to shed some of their assets." (Nautilus is a broker of distressed residential - primarily subprime - loans in the secondary market.)

Phillip Neudecker, a managing officer with Neuwest Financial Services, Mission Viejo, Calif., said this market is growing "because some of the originators who have never sold nonperforming loans before are now entering into the arena."

Mr. Neudecker, whose advisory firm specializes in the secondary market, said originators are more interested in this type of distressed debt because it has become "more cost effective to sell (nonperforming assets) as whole loan transactions." He said that originators have found this preferable to ...