Have you read this Market Watch article about the status of delinquent mortgages that were sold from Fannie Mae and Freddie Mac?
Many defaulted loans were sold at steep discounts to investors to help the home owners get current and remain in their homes. However, over 75% of the loans sold are still delinquent. This was a big disappointment and the article even lamented the fact that non-profits are unable to buy and manage so many notes. The article also stated that the investors did not have the experience necessary to handle these non-performing loans which is why so many are still in default. So what are the investors that bought the remaining 24%+ doing differently?
Whether they know it or not, investors have multiple strategies to create a win-win for the homeowners and the investors.
Forgive some of the debt
They can forgive some of the principle balance. If you buy a loan balance of $100,000 for $50,000 and the house is worth $80,000, would you be okay with lowering the balance to $80,000 so the borrower can get back on track and not have an underwater mortgage? Would you be okay with making $30,000 instead of $50,000?
Use government programs or local charities
Investors can utilize government funded programs that help get home owners back on track by helping with mortgage, insurance and tax payments. The Hardest Hit Fund has recently added $2 billion to its budget to do just that. Only certain states are doing it, but you can always research different locations to see if there are local governments or charities that provide similar programs. Get more information about the Hardest Hit Fund here: https://www.treasury.gov/initiatives/financial-stability/TARP-Programs/housing/hhf/Pages/default.aspx
Foreclose on vacant properties
Now, the article did mention that more of the properties that were sold have been foreclosed than properties that weren’t sold, but the ones they didn’t sell are still delinquent. If they aren’t making their mortgage payments, are they paying the taxes? Is their hazard insurance still in place? Probably not.
You can foreclose. This was not the aim of the program, but if the owner of the property left years ago and has moved on, foreclose and resell the property to someone who want to live there or rent it out to a tenant. I met an investor who bought a note on 10 townhomes that were vacant for nearly 8 years! She was able to foreclose quickly and start rehabbing the property in order to rent it out and help improve the area. The idea is to help stabilize the community. Vacant houses typically mean no one is paying the mortgages, taxes, insurance. No taxes coming from multiple vacant homes is detrimental to communities as there is less money coming in to fund public services. Getting these homes to generate revenue for investors and the local taxing authority helps ensure that basic public services can continue and a safe environment is provided for people living in those communities.
If you want something done right, hire a professional
The author stated that it would be too difficult for non-profits to handle so many defaulted loans. They’re in the charity business, not the note servicing business. They should be able to hire a note servicing company that specializes in delinquent loans to help either get them paying or find them somewhere else that is more affordable. Perhaps some note servicing companies can help these charities by volunteering time to help manage the notes. Both the charities and the servicing companies should discuss a plan that helps not only them, but the home owners as well. The charities don’t need to spend their time managing notes, they need to spend time helping people. Let the professionals manage the notes.
Create a game plan before you start
The author of the article stated that the investors that still have the delinquent loans were not experienced enough to handle these mortgages. It is not just a matter of experience. They do have experience: a bad one. What they don’t have (and what they desperately need) is a game plan. They need the right knowledge and they need to put it into action. In hindsight they should have done more research first and as they went along. The other investors with the 24% of loans that are now back on track, did precisely that. They weren’t lucky. They may not have even had “experience”. They sought out the knowledge they needed and they put it to work. They found the professionals they needed to communicate with the borrower. They forgave some of the debt. They used government funded programs that helped remove some of the financial burden on these borrowers.
So, what are you going to do? Don’t just talk about the problem, seek the right information and put it to work. Read the original article here and let me know what you think.