-- A window of opportunity may soon open for home owners who have found
themselves in trouble because they opted for one of several kinds of
so-called "toxic" mortgages to finance their homes.
As long as they can requalify under today's more stringent lending
standards, the investors who own their mortgages could come calling
with offers to recast the loans with more favorable terms. They may be
willing to cut interest rates, for example, or perhaps they'll reduce
the loans' balances.
But even if the home owner doesn't qualify, the lender may allow him or her to sell the place for less than what is owed.
"There's not an investment bank in the country that's not using this
strategy," said Jeffrey Taylor, co-founder of Digital Risk, an Orlando,
Fla.-based firm that offers risk-mitigation and due-diligence services
to the financial industry. "It's the creative way to liquidity."
may be a bit of an exaggeration. Certainly "some" investors are moving
as fast as they can to rework the loans. But there is no shortage of
companies looking to plum the bottom of the housing market by
purchasing nonperforming mortgages from investors and then trying to
turn them into performing assets that can be resold to other investors.
Even veteran investment banker Lewis Ranieri, the man credited with
creating mortgage-backed securities in the 1980s, has formed an
opportunity fund to buy residential loans.
In normal times, investors can usually purchase slow- or no-pay
mortgages for 70 to 75 cents on the dollar. But these are anything but
Now, with millions of borrowers in default, the value of
nonperforming loans on the secondary market has taken an extraordinary
nose dive, sometimes to as little as 25 to 30 cents per dollar of
outstanding balance. And at that price, the new owners of these
mortgages have much greater latitude when working with delinquent
Jacob Benaroya, president and managing partner of Biltmore Capital
Group, a New York-based bulk buyer and seller of nonperforming mortgage
portfolios secured by residential properties, won't reveal what he is
paying for delinquent loans, saying only that the pricing "has opened
up a little bit" over the past few months. But he is much more glib
when it comes to discussing his company's strategy.
"We try to turn nonperforming loans into reperforming assets," Benaroya said.
Opportunity investors also make it easier for borrowers to move on
if they can't or don't want to stay. Typically, these are people whose
homes are no longer worth what they paid for them, or perhaps even less
than what they still owe.
Indeed, once you have lined up a "short sale" buyer -- that is,
someone who is willing to buy your place but only at a price less than
what you owe on the mortgage -- Gurley said that as long as the deal is
"realistic," she can give you an answer within 24 to 48 hours.
So should troubled borrowers simply wait for their loans to be sold
in hopes the new owner will come riding to their rescue? Absolutely
not, Benaroya says.
On the contrary, his advice is to pound and pound hard on your current lender for relief. "Be proactive," he said.
When and if your loan changes hands, you can expect the new lender
to contact you. But scam artists -- whose goal is to con you out of
your home by saying they now own your loan -- may also contact you. So
beware of someone who says he or she now owns your loan.
In a legitimate loan transfer, you should receive a goodbye letter
from your old servicer or lender as well as a hello letter a few weeks
later from your loan's new owner. Both letters should contain
information with regard to your loan amount, interest rate and other
If the letter asks for your Social Security, bank-account or
credit-card numbers, back off, Gurley said. "We already have that
In the meantime, some experts say to keep making your house payments
if you can, while others say the best way to get the lender's attention
is to stop paying. Benaroya doesn't recommend the latter, saying it is
terribly damaging to your credit. But so is a foreclosure, so there
isn't much difference.
If you can pay but still elect to stop, don't spend the money.
Instead, put it in a separate account so you'll have the cash on hand
to bring the loan current when and if that becomes necessary.
Lew Sichelman has been covering real estate for more than 30 years.
He is a regular contributor to numerous shelter magazines and housing
and housing finance industry publications.