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Real Estate

Lenders to reach out to borrowers

WASHINGTON -- 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."


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  • That 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 normal times.

    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 borrowers.

    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 loan terms.

    If the letter asks for your Social Security, bank-account or credit-card numbers, back off, Gurley said. "We already have that information."

    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.

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    roger wrote on July 05, 2008 11:09 AM: "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."..... aren't these mortgage backed securities the reason banks across the globe are taking billion dollar write-offs right now? And I am sure Lewis has without a doubt found a way to once again capitalize on the current downturn to make more money. while people everywhere are losing the equity in their home he will walk away a multi-millionaire at everyone's expense. Oh you gotta love it.