Debt Buyers Eagerly Eyeing Treasury Department?s Recovery Plan

Market investors may not have welcomed the U.S. Treasury Department’s announcement Tuesday that it will partner with private equity investors to help Wall Street banks cleanse their balance sheets, but consumer debt buyers want to hear more.

“I’m very interested in seeing what form this takes…if there is some way we can end up participating,” said Al Brothers, CEO of Cavalry Portfolio Services, a Phoenix, Ariz.-based firm that buys all forms of non-performing consumer accounts.

Barbara Sinsley, general counsel for DBA International told insideARM that Brothers is not alone. She said the association’s Washington D.C. representatives have reached out to federal lawmakers about participating in the recovery plan and are making good inroads.

“DBA International’s board and members think this is a prime opportunity for our membership to reach out to the government and partner in the debt sales that may occur,” Sinsley said. “Our membership has the expertise and financial backing to get this done. Plus there’s the added advantage our membership has in adding to the employment rolls.”

Debt pricing, however, will determine if Brothers and other debt buyers dip their toe into the banking industry’s troubled waters.  Brothers said he believes there’s enough private capital to buy the mortgage assets without government funding and that Cavalry has approached banks about buying some of their mortgage backed assets. He said the banks, however, want more than the assets are worth.  

“We’re in the business of buying assets from banks every day,” Brothers said. “We see a lot of assets banks are holding that they are not willing to sell at current market prices.”

David John, a senior fellow in financial services at the Heritage Foundation, said the Wall Street banks are worried about becoming insolvent if they have to sell mortgage or other consumer assets for less than they shelled out, forcing them to write off the balance.

John said the banks are hoping that the Treasury forms an aggregate bank or so-called “bad bank” to buy their toxic assets, presumably for more than they are worth, or at least allow the banks a one-time exemption from the mark-to-market accounting rule that requires they value the assets on their balance at the price the market is currently willing to pay.

“They want some forgiveness to recording the mark-to-market or market value of the asset,” Johns said. Johns said that may still occur, but so far there’s no indication in the Treasury Department’s Financial Stability Plan fact sheet that it will happen.