….Because most likely your loan isn’t toxic, and won’t actually be one of those sold at 20cents on the dollar. You probably have a track record of payments, making your loan one that BAC/CFC will actually keep…
Me thinks BAC isn’t that dumb. Their going to cull through the loans and houseclean what really is a toxic risk.
Second, while your financial situation might be able t o support your own mortgage at a discount, guess who you’re competing with.?
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Ah yes, hedge fund companies…..Why? Because it’s a salvage operation at this point. The only way you can get people to buy these toxic loans is to steeply discount a package of them, so at least there is the possibility of re-working some of them and make enough money off of a few to cover the cost of the rest….Hence why these toxic loans will be bundled up and sold together.
For instance…
“However, the hedge funds acknowledge that the loans they purchase are often in such trouble that as many as two-thirds to one-half can’t be salvaged.” I would say even that would be an understatement.
Guess who holds your mortgage now? It’s your friendly neighborhood hedge fund.
Dozens of hedge funds, private equity groups and other investors have plunged into the beaten-down mortgage market in recent months, buying tens of thousands of distressed loans and foreclosed properties around the country. They hope to profit from the woes of banks and other investors holding mortgages that have plummeted in value as home values sink and defaults soar.
They are buying them from Wall Street investment banks eager to rid themselves of bad assets. Merrill Lynch & Co., for example, said this week it would sell mortgage-linked investments once valued at $30.6 billion for just $6.7 billion to Lone Star Funds, a distressed-debt investor in Dallas.
Many of the hedge funds, run by former Wall Street and lending industry executives, claim they can do a better job than banks or other investors of modifying mortgages at terms that consumers can afford.
“We’re much easier to deal with than a bank,” said Jacob Benaroya, managing partner of New Jersey-based Biltmore Capital Group, a hedge fund that’s buying up to $100 million in mortgage debt per year. “We’ve bought (the loan) at enough of a discount that we can make special arrangements with the borrower.”
However, the hedge funds acknowledge that the loans they purchase are often in such trouble that as many as two-thirds to one-half can’t be salvaged. In that case, the fund obtains the property through foreclosure and tries to sell it off, or allows the borrower turn over the house keys in return for forgiving the outstanding mortgage balance.
Edelmira Sayo, a real estate agent in Northern California, wound up turning over a rental property to investment firm G8 Capital this month after falling into financial trouble as her business slowed down and her income dropped.
The investor had offered to cut the value of the $410,000 loan by $50,000, but she still couldn’t qualify for a new loan because the value of her property had plummeted by nearly $100,000.
“If I could have just had it modified, I could have kept it,” she said. “I didn’t want to tarnish my credit report…It’s just so sad.”
Evan Gentry, chief executive of G8 Capital, said the company worked with Sayo for months to help her find a way to refinance the mortgage, but he said it couldn’t be done because of falling property values, tighter credit standards and Sayo’s lower income.
For many such borrowers, he said, “the best move for them is to simply do a deed in lieu of foreclosure and simply start over,” adding that many borrowers “feel a great relief when we tell them it’s OK” to do so.
So far, housing advocates say they haven’t yet seen the impact of such hedge funds among the borrowers they counsel. But they hope these new investors will be more amenable to borrowers interests’ than the current mortgage holders, which have been widely criticized for being sluggish to modify loans amid an unprecedented volume of defaulting loans.
“I have been waiting for this to happen,” said Gabe del Rio, vice president of lending at Community HousingWorks, a nonprofit housing agency in San Diego. “It will equate to a deeper ability to modify mortgages.”
Still, there are some worries that desperate borrowers unwittingly may be giving up protections — such as the right to sue the original lender — when they agree to a modification. “Borrowers are not represented by an attorney or anybody who can advise them about the legal effects of what they’re signing,” said Kurt Eggert, a professor at Chapman University’s law school.
Distressed debt investors, however, emphasize that they are less bureaucratic and more willing to make changes than most loan servicers, which collect and distribute mortgage payments.
“They’ve got too many loans and not enough people,” said Matt Stadler, a principal with investment group National Asset Direct, which currently owns about 750 loans and is looking to double that amount.
Restructuring the loan, when possible, is often faster and less expensive than going through the foreclosure process.
“We’re fully aligned with the interest of the borrower to find a way to make the loan more valuable by keeping them in their home,” said Stanford Kurland, a former Countrywide Financial Corp. executive who founded Private National Mortgage Acceptance Co. Kurland’s company, nicknamed PennyMac, aims to raise $2 billion for mortgage acquisitions.
To negotiate new loan terms with borrowers, some companies are setting up their own loan servicing operations.
For example, Marathon Asset Management, a New York-based hedge fund that specializes in debt investments, has its own loan servicer, Phoenix, Ariz.-based Marix Servicing, to handle the loans it purchases and those for other companies.
The company’s 49 employees handle no more than 200 cases each, compared with 500 or more for more typical loan servicing companies, said Rick Smith, the company’s president. His employees are also more aggressive.
“It’s not just calling somebody once a week,” Smith said. “We might call them on a daily basis, morning noon and night to find the best contact.”
