Back to Kondaur News
Snapping Up U.S. Homes
REALTY Q&A
Snapping Up U.S. Homes
Overseas investors set to pounce on troubled markets, seeking bargains
By Lew Sichelman
Last update: 7:33 p.m. EDT April 10, 2008
Q: Why won't my bank let someone like me do a workout plan. They won't do anything since it is in foreclosure. They are the worst to talk to on the phone. All you get is passed around on the phone.
A: The system is broken. Lenders -- or more accurately, the companies which administer loans on behalf of the investors which now own them -- are simply overwhelmed. They don't have the staff to handle the volume of callers asking for help. And even when they do have the manpower, they are dealing first with those borrowers who are in the most danger of losing their homes. Folks who are just a month or two behind just have to wait in lines for their turns.
If it is any consolation, you are not alone. Far from it, in fact. I get emails from homeowners like you all the time with nowhere else to turn. Here's a typical message:
"When you say get on the horn with your lender, you must be talking about mythological local bankers or lenders back in an earlier century who might have cared. These companies have built a high percentage of foreclosure into their business models and will not budge until the numbers hit crisis level. My guess is that the beaches will be 10-feet deep in bodies of foreclosed families before my lender will extend much more than a weak grin to help anyone avoid a foreclosure."
For more than the standard advice of calling your lender early and often, I turned to Jon Daurio, chairman of Kondaur Capital Corp., a Santa Ana, Calif., company which buys what's called "scratch and dent" mortgages. These are the problem loans others don't want, loans Daurio's firm turns back into performing assets, allowing borrowers to remain in their homes where they can live in the mythical land known as "Happily Ever After."
He says the key to turning a bad situation into a good one lies in educating the owner of the loan about the current value of the property and your inability to make your payments. You want to be able to show that if you fail, as you most certainly will, the loan's owner will be getting back a house that is worth less than what was invested in it. Consequently, there will be a greater loss by kicking you out of the house than by reworking your loan and keeping you in the place.
Often, Daurio points out, the company you are dealing with is not the company which originated the loan but rather a third-party servicer, a hired collector. Sometimes the loan has been sold from the lender to an investor and perhaps to yet another investor. And sometimes the servicing rights have been passed around several times as well.
"Many consumers have the false impression that the people with whom they are dealing are their lenders or, at least, the owners of the loans, when in reality, they are often lower-level employees or contractors of servicers," says Daurio.
In many cases, moreover, the person on the other end of the line probably has no authority to restructure the terms of the debt. Often, the servicer must contact the loan owner, who may be hard to identify and, when found, may be reticent to restructure the loan because the owner does not want to rely on the servicer's evaluation of the situation, and especially on the servicer's valuation of the property.
The Kondaur executive also points out that servicers typically are "inadequately staffed to handle default management and offer creative solutions" to borrowers in trouble. For the most part, he says servicers are compensated on the money they can collect from borrowers, suggesting they are motivated to keep collections as high as possible.
"There is added incentive to keep loan amounts propped up," he notes, "because banks don't want to take the hit if there is 'a workout' that lowers the debt. Moreover, banks are scared that, if they reduce loan amounts and interest rates on one mortgage, they may be forced to keep higher reserves for all the other similar mortgages, even when no one has asked for a workout on those."
To avoid becoming just another log in the jam, Daurio wants you to educate the servicer and your loan's owner about the true worth of your property -- in today's terms, not yesterday's when the loan was first issued.
Start this process by finding out what properties comparable to yours are listed for. Then, speak with local agents to learn what these houses are actually bringing in the way of offers, if any. Typically, value is determined by past sales of similar properties. But in a declining market, this is unreliable, so you have to find a way to show that like properties are not fetching the kinds of prices they were just a few months ago.
The next important step is to take your information to someone in authority, says Daurio -- "Someone who is empowered to make concessions, someone who understands this is a problem loan that is not going to get better with neglect."
You also can help your case by providing a current and accurate financial statement that shows income and expenses and a balance sheet showing assets and liabilities. "It doesn't have to be extensive or complex; it could be in crayon for that matter," the loan re-arranger declares. "Homeowners can even run their own credit reports and use them for corroboration."
Such documentation "will prove the consumer is having problems and needs attention," Daurio advises.
Nationally syndicated columnist Lew Sichelman has been covering the housing market for 35 years. Because of the volume of mail he receives, he cannot answer individual questions, nor can all questions be answered in this space. E-mail lsichelman@aol.com
MarketWatch.com