The lure of playing the lottery and winning millions for doing nothing might sound hard to do. The odds of winning are extremely low and even lower if no ticket is bought. Successfully getting a loan modification has a lot in common with winning a lottery jackpot. Getting your lender to agree to a drastic reduction in payments and principal reduction is similar to winning the lottery. The old adage, "the lottery is for those who don't know how to do math" is very true. Less than 1% of all loan modifications become permanent.
A recent article in the Wall Street Journal points out a new trend in trying to help underwater borrowers- Loan Vultures. Scavenger funds are growing in numbers, however, they are receiving friction from lenders. According to the Wall Street Journal, "Most delinquent mortgages aren't available for sale because they are locked up in so-called private-label securities (the ones packaged by Wall Street during the boom) or in the hands of Fannie Mae or Freddie Mac."
If a scavenger fund buys a delinquent borrower's debt for $50,000 on a $100,000 note where the borrower repays $70,000, they still make a profit. If there was only a way to assemble the holders of these securities, many with different interests and geographic locations, and get them to come to an agreement for a way to sell the bad loans to vultures. As for Fannie and Freddie, they believe they know how to deal with loan mods. They certainly do not want to sell their loans at huge discounts. Even if they did, there would be political hurdles: mainly because of the money lost on these deals could possibly be passed on to taxpayers because they may be accused of selling loans too cheap.
The upside is that banks are being forced to buy back from Fannie and Freddie as the loans do not meet quality standards. So these loans will go on the block. The skies will be filling with vultures if this happens. More positive news is the edge vultures have over dealing with banks, which tend to be bureaucratic with extremely complex rules about which ones can be renegotiated and how.
In the end a vulture fund swooping in has to do with your loan holder and their own guidelines. Still hope for underwater borrowers rests in the implementation of a plan, unlike HAFA or HAMP, which actually helps people. Either situation between a loan mod, playing the lottery, and a vulture fund (out of borrower's control) is better than a foreclosure. So being offered up as roadkill may actually not be a bad thing and can potentially help as long as borrowers are not "playing possum."
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