Foreclosure Prevention Method Not Working Out
One of the possible long-shot opportunities for some homeowners trying to avoid foreclosure was the possibility that their loan might be purchased by another investor, allowing them to re-write the terms of their loan. However, the servicing rights would also have to be transferred, in order to do the wheeling and dealing needed to restructure the loan in a way that ensures long term success.
I’d previously mentioned the vulture funds that have sprung up. Their chief complaint is that they’re not seeing low enough prices on the assets. Investors aren’t willing to let their bad mortgages go at a price that anyone wants to buy.
One fund *has* been buying assets, though. Fortress Mortgage Group, LLC, set up their Mortgage Opportunities Fund to purchase AAA-rated investments. They’re buying what’s supposed to be “safe” investments in the mortgage world.
Their fund is down 30% in the three months of operation.
Normally, a fund like this would be out of business, but “cut your losses” doesn’t apply here: investors are locked in for three years. Perhaps, by being held hostage, they’ll recoup that 30% loss, but that’s a tough blow to come back from. If funds started flying out in a mass withdrawal, those losses would likely accelerate.
This does NOT bode well for future homeowners in distress. What it signals to the funds who couldn’t find “attractive” assets is that they were right to hold out for lower prices. So, it’s unlikely a lot of “suckers” are going to dive into the market at current “offer” prices.
My suspicion is that some investors may be holding out for the FHA to bail them out. Even after looking at the big “haircut” they’d have to take, they probably suspect that it would be cheaper to do the FHA deal than to sell the loans in the open market. For those that fall into this category, the question is, “Can your homeowners stay out of foreclosure long enough?”
The larger issue is this: many investors won’t lose much, even if they do take back a lot of homes because the homeowners cannot stop forelosure. As Jane Bryant Quinn wrote in Newsweek, 70% of the investments are in low-risk tranches.
These investors are highly unlikely to cooperate, even with borrowers who’d like to use the FHA program to avoid foreclosure.
Add to this the fact that many mortgage servicers can’t manage their way out of a paper bag, you’ll likely have borrowers slip through the cracks and find themselves in foreclosure anyway.
If you know of someone who wants to stop foreclosure and keep their home, there is a way to win this game, but you won’t find it by looking in the popular press.
And your mortgage company is not going to show you, “How to get the best loan workout terms” either. Their job is to collect a debt, not counsel you.
If you know of someone who’s struggling with foreclosure, it’s probably going to get worse, not better. if they don’t make some changes. Go to my website, or contact my office and we’ll assess the situation to determine your best move right now.
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