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||In his weekly column The Housing Scene,
Lew Sichelman provides consumer-oriented information on housing and
real estate that is essential reading in today's market. Dubbed "the
consumer's real estate columnist," Sichelman uses plain English to give
readers information they can use, making The Housing Scene
easily understandable for even first-time homebuyers. His column
addresses a wide range of topics, such as how to search for homes on
the Internet, when to build your dream home and what to look for during
house inspections. One of America's most prolific real estate
journalists, Sichelman offers an expert opinion on how consumers are
affected by the latest industry developments. His tough-but-fair
reporting has made him a trusted source for millions of loyal readers
for more than 20 years. Sichelman has been honored by several
organizations, including the National Association of Real Estate
Editors, Mortgage Bankers Association, National Association of Home
Builders and National Association of Realtors. In 2002, NAREE awarded The Housing Scene
second place honors for Best Column in the organization's journalism
competition. Sichelman also earned a second place award in the Best
Trade Magazine Report category. Based in Washington, D.C., Sichelman
has been covering the national housing scene since 1969, first as real
estate editor of The Washington Daily News, then as real estate editor of The Washington Star. His work also appears in Sports Illustrated, National Mortgage News, House & Home and other magazines and trade journals.
Most Recent Column
Help for troubled borrowers
WASHINGTON -- A window of opportunity may soon open for troubled 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 you can requalify under today's more stringent
lending standards, the investors who own your mortgage could come
calling with an offer to recast your loan with more favorable terms.
They may be willing to cut your interest rate, for example, or perhaps
they'll reduce your loan's balance.
But even if you don't qualify, they still may be able to let
you off the hook by allowing you to sell the place for less than what
"There's not an investment bank in the country that's not
using this strategy," says 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."
That may be a bit of an exaggeration. To move their
nonperforming loans off the books, certainly SOME investors are moving
as fast as they can to rework the loans so borrowers will once again
make their payments in a timely fashion.
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
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 says. "Then, after some 'seasoning' -- say, six months of
on-time payments -- we can either resell the loans or continue
collecting the payment ourselves."
The Wall Street executive says firms like his are much better
equipped to deal with problem borrowers than the typical investor or
the servicing agent hired to administer their portfolios, which can
include millions of mortgages. "Our advantage is that we deal only with
nonperforming loans," he says.
While most servicing companies are good at handling loans that
pay on time, they aren't so good when it comes to delinquencies, and
right now they are overwhelmed. In some portfolios, three out of every
10 loans are delinquent, and traditional servicers just aren't able to
handle that amount of problems.
On the other hand, with firms like his, Benaroya says, "Default servicing is our only specialty."
"Our well-trained, mission-committed associates use
state-of-the-art technology to connect with borrowers in order to
diagnose and remedy sub-performing mortgage assets with unparalleled
loss-mitigation and asset-disposition strategies," says Louis Amaya,
chief investment officer of National Asset Direct, a San Diego,
Calif.-based purchaser of distressed loans.
Another thing these investors bring to the table is a
long-term view. "We are backed by patient capital," says Sadie Gurley,
managing director of New York's Marathon Asset Management, a name that
speaks to the company's focus. "We have no plans short term other than
to get these loans performing again."
All mortgage investors have the ability to cut deals with
borrowers who want to remain in their homes. But because companies like
Biltmore and Marathon have a lot less invested, they can offer much
better terms to folks who want to remain in their homes and have the
ability to pay going forward.
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 says that as long as the
deal is "realistic," she can give you an answer within 24 to 48 hours.
That compares to the weeks or months it sometimes take the
typical loan servicer to respond with a yea or nay. And, as Gurley
points out, "by that time, your buyer is usually gone."
So should troubled borrowers simply wait for their loans to be
sold in hopes the new owner will coming 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
In other words, don't hide. Respond to phone calls and open
the mail. "There's always a tendency to circle the wagons when money is
owed and debt collectors are calling," according to the Biltmore
Capital executive. "But now's not the time. Now the earlier you step
up, the more options you have."
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 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
The new owner may also seek information about your job and
income in an effort to ascertain whether you can afford to go on. But
if the letter asks for your Social Security, bank-account or
credit-card numbers, back off, Gurley warns. "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.
If you are having difficulty making your house payment,
Benaroya suggests prioritizing your spending. After health care,
keeping your home should be your first priority, over and above
unsecured debt such as your credit cards. MasterCard can't take your
house, but your mortgage lender can.
Also review your finances to see what discretionary spending
can be eliminated or put on hold, such as cable television, club
memberships and dining out.
Another possibility is to put your other assets to work for
you. Do you really need a second or third car? Can jewelry be sold for
enough to cover a house payment or two? Can someone else in the
household bring in additional income?
"Even if these efforts don't significantly increase your
available cash," Benaroya says, "they demonstrate to your lender that
you are willing to make sacrifices to keep you home."
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.
Copyright 2008, United Feature Syndicate, Inc.
United Feature Syndicate
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