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Homeowners face a new threat…mortgage buyers

July 14th, 2010

As if trying to get the  mortgage modified wasn’t stressful enough, homeowners are slammed with another punch. Mortgage buyers are buying all the mortgages they can get their hands on. The homeowner is promised that all their debt will be restructured and that they will keep their houses. The truth is, the new mortgage owners are trying to foreclose on the property as soon as possible.

There is plenty of profit in buying distressed mortgages. You can get them for pennies on the dollar. So far this year over $1 billion in scratch and dent residential mortgage loans have changed hands. One of the major players is Kondaur Capital Corporation. They have done about $1 billion this year, and we still have 5 months to go. Kondaur’s strategy is simple. Buy a mortgage for pennies on the dollar. Offer the homeowner money to leave. Aggressively price the house for a quick sale. Close the deal. Move on to the next deal.

Companies in the scratch and dent mortgage business do not care about loan modifications. Only about 5% of the properties get loan modifications.  Many of these loans are in the states with the most troubled housing, such as Arizona, California, Florida and Nevada.

If the house can’t be sold, some of the companies have come up with innovative ways to make a profit. One way is a shared equity arrangement. When the house is eventually sold the homeowner and the company share in the equity appreciation.

Another way is to offer the homeowner a long term rental contract with an option to purchase the property.

One trick that some buyers of scratch and dent mortgages use is to mixed some good mortgages with the scratch and dent and sell the repackaged deal to Fannie and Freddie.

They are hoping that they will pass the 10% audit. This audit is just a spot check. If anything suspect is detected then a full audit is performed.

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• RBS shops Kondaur bonds backed by sour US mortgages (reuters.com)
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Entry Filed under: foreclosure