For the past couple years, first-time home buyers were edged out of the market by investors offering cash for foreclosed homes. Snapping up the properties at foreclosure auctions and the like, firms like American Homes 4 Rent and others collectively amassed more than 200,000 family homes, with the intention of turning them into cheap rental properties.
But now, the supply of foreclosed homes is drying up. The price of homes is on the incline. So these firms are turning to another sector of the housing market where the supply still seems plentiful: distressed loans. A recent housing market report indicates that 1 in 5 homeowners are still underwater on their loans.
Our Miami foreclosure defense attorneys are deeply concerned about this shift. If a distressed loan is purchased by an investor or firm that has a vested interest in that property going into foreclosure, there will be little chance that the investor is going to be open to working with the struggling homeowner to hammer out a loan modification plan.
Remember, even banks have never been too keen on offering home loan modifications, but they’ve been prodded by government regulators to at least offer up proof that they’re trying. These investors are under no such obligation.
The effect will be that people are going to lose their homes. Their credit will take a beating. They may even be transformed into renters in their former homes. The investors are pitching it as “an opportunity” for homeowners, a chance to keep their kids in the same school system. We might consider that generous, if it didn’t also mean that ownership of their home was simultaneously being ripped right out from underneath them.
One of these firms, in a recent presentation to investors, revealed that it had invested about $220 million in 1,740 non-performing loans, compared to $708 million to own about 5,050 rental homes. That means that this company is paying, on average, about $127,000 for bad loans, versus an average of $140,000 for an actual property. Of those bad loans, insiders estimate that at least 50 percent will end up going into foreclosure and becoming rental properties. Some homeowners do receive loan modifications, but there is no guarantee that the terms will keep them in their homes for any extended length of time.
Another company reported that it had purchased 13,500 delinquent loans in 2012. Of those, less than 290 were resolved and 150 of those went into foreclosure.
These kinds of investments are likely to continue, as banks are all-too-eager to unload these loans – and the new mountain of regulation that comes with them. Of course, that regulation is intended to protect the consumer. But when the loans change hands, the consumer loses those protections.
Just last year, Bank of America reportedly unloaded nearly $35 billion worth of non-performing loans to third-party investors. That was an increase of 167 percent from the previous year, when it sold roughly $13.1 billion in poorly-performing loans.
The Mortgage Bankers Association reports that about 5.5 percent of all U.S. mortgages (some 2.2 million loans) are at least three months delinquent or in foreclosure.
Housing advocates say that these companies have an ethical responsibility to offer home loan modifications to the people who own these properties. Some company representatives insist they always attempt loan modifications first.The problem is that this runs directly counter to their business model.
Homeowners who are behind on their mortgage payments already have enough factors working against them. They don’t need the owner of their mortgage loan invested in seeing them fail.
If you’re battling foreclosure in Miami or the surrounding areas contact Jacobs Keeley for a confidential appointment to discuss your rights. Call (305) 358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday from 5 p.m. to 6 p.m. on “Debt Warriors with Bruce Jacobs,” discussing foreclosure topics that matter to YOU.
Wall Street Landlords Buy Bad Loans for Cheaper Homes, Feb. 21, 2014, Staff Report, Daily Business Review
More Blog Entries:
Report: 1 in 5 Homes Still Underwater, March 16, 2014, Miami Foreclosure Lawyer Blog