A little more than a year ago, a client of mine called me and told me he had heard of a situation in New Jersey where a charitable ccorporation was purchasing mortgage loans which were badly in default, contacting the Borrowers to see if they wished to work out an arrangement to stay in their homes, and, generally getting the loans back into a performing arena.
This client asked me if I would want to work with him on a similar approach in New England. Our collective goal would be to identify properties which had some retained value in generally favorable locations and work with the property owners to get their loans to perform. The key for my client was purchasing the loans at a deep discount, so whatever new arrangement could be worked out, there was room in the discount to make the concept a "win-win".
Approximately 15 months into the process, the results are nothing short of miraculous. When asked whether they would be in a position to start making payments on their mortgages loans which were considerably lower than what the original mortgage note called for, all but a few of the homeowners said yes, and these loans are now performing (with lower payments and total mortgage balances) some for more than six months without a default. Kids can stay in school; disrupted family lives can be restored.
I believe the approach I have described has merit. There are some financial "hits" which need to be taken. My advice is let's figure out a way to take these hits now and let people move on with their lives. Subsidies of $1,000 to a Lender aremeaningless. Compensate a Lender for 50% of its loss, and you will get more responsive participation. It has worked for my client on a miniaturized basis. I see no reason why it could not work, in some manner, for every loan in America which is in default.
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