Mission Capital Advisors, a loan sale advisory firm, has been capitalizing on what you might call the upside of downside for a few years now. As banks increasingly look to get underwater real estate loans off their books, the secondary market for those loans has exploded. Since the beginning of 2009, some $74 billion of loans (as measured by unpaid principal balance, or UPB) have traded hands in the secondary market. Mission had advised on $9.3 billion of those sales, in 114 different transactions.

The market has been gaining steam, too. In 2009, according to Mission, $17.3 billion of loans were sold; in 2010, $26.9 billion; and through October of this year, $30.1 billion. Whereas the Federal Deposit Insurance Corporation saw sales of loans it seized from failed banks peak in 2010, sales by existing banks have been surging this year, rising from just $9.4 billion in 2010 to $21.5 billion through October 2011.

Why the sudden interest in getting bad loans off their books?

David Tobin, one of the two principals of Mission Capital, says there are numerous reasons, all of which are interacting to create a kind of perfect storm of interest by both buyers and sellers in the secondary market for loans.

For starters, banks that might have held on to some loans in hopes of a burgeoning economic recovery are starting to lose hope. What’s more, there’s that whole Europe thing. Throw Jon Corzine’s MF Global (MFGLQ) debacle in there for good measure. Moody’s index of commercial property values, the CPPI, indexed to 100 as of December 2000, peaked around 200 in late 2007 and early 2008, before taking a complete round trip back to 100 as of the beginning of this year. The market has bounced off the bottom—to about 120—but has been largely treading water since late 2009. “After that bounce, it’s gone back down a little, and looks to be flat for the foreseeable future,” says Tobin. “It’s a smart time to sell.”

A second reason for renewed interest in selling is the challenge banks have had in making new loans. Analysts and investors are demanding balance sheet improvements out of the banks, says Tobin, and if the banks can’t show strength by adding new, solid loans, then they’ll do it by unloading legacy assets that are a drag on capital. And that’s just what has happened. “Banks have been selling as much as their write-downs or operating profitability have allowed,” says Tobin. “But when they can sell, they do. The best thing a bank can do is sell properly marked assets that help fix the balance sheet. The more you can sell, the better you are perceived.”

In August, for example, Wells Fargo (WFC) bought $1.4 billion in commercial real estate loans from the Bank of Ireland. The U.S. bank paid close to face value for the loans, which are in relatively healthy gateway cities such as New York, Boston, and Washington.

Not all sellers are getting close to par. The biggest sale of the year: $10.5 billion of loans owned by another Irish bank in much worse shape than the Bank of Ireland, Anglo Irish. While not complete, early estimates have pegged the ultimate sale value of the portfolio at 80 to 85 cents on the dollar.

It gets worse: also in August, Mission advised the purchasers when Valley National Bank (VLY) sold a $15 million construction loan for a stalled condominium development in Brooklyn. The buyers paid just 53 cents on the dollar. Earlier that month, Oaktree Capital acquired $205.4 million of underwater mortgages from M&I Bank for 50 cents on the dollar. Mission advised on that deal as well.

Which brings us to the third reason for robust activity in the loan market: with private equity firms like Oaktree, Colony Capital, and Silver Point Capital having raised an aggregate of tens of billions of dollars for distressed real estate funds, the pressure is on to get that money out the door or be forced to return it to investors. Whereas Tobin says he used to see strategic buyers picking off parts of loan packages more than 90% of the time, large financial buyers are much more competitive in loan auctions of late.

Basically, says Tobin, both sides blinked. Banks had been selling loans, but not as aggressively as they should have—the 50% fall in financial stocks this year says all there is to say about investor faith in the quality of bank balance sheets. And institutional investors had their, ‘Eureka!’ moment at the beginning of this year when they realized that time was running out on them.

Postscript: In June, I wrote about Evercore Wealth Management’s investment offering designed to protect investors from the vagaries of global policy making in these unprecedented times. And I demanded that they begin offering a retail product. Voila! On Monday, the firm is officially launching its Evercore Wealth Management Macro Opportunity Fund (EWMOX). The strategy is working so far: it was up 14.2% as of the end of September.