According to this article from CoStar (scroll down to the headline United Western Sells Option Arm MBS for Less than a Penny on the Dollar) a Denver bank recently sold a large mortgage backed securities (MBS) portfolio ($47.3MM original principal balance) for only $378,000 or around $0.008 per dollar of original principal. This sale makes the phrase "pennies on the dollar" obsolete as transactions are now moving at "fractions of a penny on the dollar."
Don't expect to see too many more loan sales at such bargain basement prices - nickels and dimes on the dollar should remain more common. United Western Bank got a nice write-off from this sale and strengthened its balance sheet by ridding itself completely of MBS secured by Alt-A mortgages - low-doc loans usually considered one step above subprime and often mentioned as the 'next shoe to fall' in the ongoing foreclosure saga. However, the fact that the best offer they could get for these loans was less than a penny on the dollar highlights just how little liquidity and risk appetite there is in the current market.
To give you an idea of the type of bargain the buyer of this portfolio got (assuming they can competently hold and manage the loans over the medium- to long-term) consider that even if 99% of the borrowers disappeared and their properties turned out to be worthless as collateral the MBS buyer would still break even if it could recover face value on just the remaining 1% of loans. The more likely worse case scenario is that up to 30% of the collateral properties will end up in the hands of the lenders and recovery values on those will be around 50% of original loan values. Assuming the remaining 70% of loans are eventually stabilized and can be sold (maybe to the government?) at only 70% of original face value the gross profit to the MBS buyer will 8000%. Administrative costs and overhead will likely cut that profit down significantly, but these loans require similar administration and oversight whether they're making or losing you money. Not a bad line of business if you have the capital and expertise to dig up these deals and you can stomach the risk of jumping in to a business that everyone else just jumped out of.
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