The real estate market works in many different ways, as does any marketplace. Some of it is very predictable, and then some isn't.
Consider this. The housing market in Las Vegas experienced dizzying heights a few years ago, fueled by several factors that included low mortgage interest rates, benevolent lending guidelines and the arrival of the investor who for the most part was only interested in making quick money doing flips while prices soared. Early on in the cycle the flipper did rake in some serious cash, but those who stumbled on the market when it had already matured or was in decline are now applying salve to their wounds.
Anyway, that was the exploitive investor. Now, a few years later after the flipper has slinked into the shadows, there is another kind of an investor on the market in Southern Nevada. And elsewhere in the country.
Private capital firms are setting up shop all over and their operating module is simply to buy pools of under-performing mortgages from shaky lenders who want to expunge them from their bleeding portfolios. As the national statistics reveal almost daily in the media, there is a decent inventory of them available right now. They can be purchased for about 75 cents on the dollar if the loans are more or less current and the price goes down from there the closer toward foreclosure they edge.
What usually happens after that is the new owner of the mortgage, the investor, will contact the borrower in distress and offer him a refinance deal that is tough to ignore. The existing loan balance can be comfortably reduced because there is now room to play. Today's interest rate is often way below from where it has jumped to on many exotic ARMs after a recent reset, or the scary reset is about to occur. The private firm can also throw in the closing costs and on top of that it'll typically help out with the refinance, too. As a result of all that, the new payment can be considerably lower and thus enable the homeowner to stay in the house.
This investor class isn't leaning on the tax payer for any assistance, it is making its own money because the paper was bought at a sizable discount and the new loans are structured with a viable spread. It clearly offers solutions for many caught in a cash-flow shortage that have trouble finding a receptive ear among lenders to do a workout. Besides, regulators and lawmakers like the idea, too, as it takes some pressure off of them to provide workable answers to the mess.
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