Every operator operating in the field of mortgage loan management knows what a Reoco is and what its main use is.
The NPL market is now mature and, over the years, the specialization and competence of the actors are increasingly growing. The experts on this segment are aware of the importance of Reocos.
Considering the latest regulatory changes (read https://www.gma.it/reoco-instructions-for-use/) all or almost all the operators have acquired a suitable legal entity to take part in auctions and, generally, to assign the properties used as guarantees of their loans to themselves. The advantages offered by this instrument are clear.
However, are the DISADVANTAGES as clear as the benefits?
Probably not, or maybe not yet. Those who have been operating in this field for many years have gained enough experience to identify some critical issues; sometimes a Reoco offers only apparent and short-term advantages, but, in the long run, it may result in greater costs and management difficulties.
The cases when, in our opinion, a Reoco should not be used are listed below:
- when the asset is NOT liquid.
The value of the survey is not the only parameter to be considered to establish the price of an asset; in fact, it is also important to define the asset liquidity degree in the current market. A clear example is represented by the villas built in poorly liquid areas, where the experts can assess the property based on their value per square meter but then, at market level, the demand is completely different. The situation gets even worse when the asset is properly assessed but the demand is low; - when the auction price has NOT decreased at least by 30% compared to the realizable value on a free market.
The percentage of the difference is intentionally significant, especially for small assets where fixed costs play a key role. Sometimes even good software models cannot predict the unexpected events connected to repossess, therefore it is better to adopt a conservative approach; - when the way-out is NOT perfectly clear. This is true especially for buildings to be completed and/or to be used for accommodation/commercial purposes. Different scenarios may emerge during the work; the user should be able to predict them and have the liquidity and means necessary for any intervention; furthermore, the taxation of each transaction must be taken into account; in our Country, many cases of application lead to completely different scenarios (for example, pro-rata);
- when there is NOT any dedicated structure within the company. Loan management and property management are two different activities and must be managed by two departments with different skills. Once an asset is acquired through a Reoco, this activity shall fall within the property management sector.
- when the management costs are NOT clear.
- The property ownership generates some costs – such as the IMU property tax, condominium fees, maintenance costs, internal management costs, depreciation due to use or deterioration as a result of inactivity. To this end, it is important to develop a model that takes into account a wide range of variables and unexpected events.
In this regard, GMA will hold a workshop on this subject on 9 October in Milan; further information will be given soon. Contact info@gma.it to keep updated.
Emanuele Grassi
