from Investors Business Daily:
Investors struggling to make mortgage payments get little help staving off foreclosure, while strapped primary-home borrowers receive more — including unsolicited loan-modification offers.
Lenders and government agencies have started a number of programs to make loans easier to afford. Yet every plan has the stated goal of helping just homeowners borrowing for “owner-occupied” properties.
Investors are never mentioned, but own nearly a third of homes in the foreclosure process, data on default and auction-sale notices, bank repossessions and the like suggest.
It has led some observers to question whether the foreclosure tide can really be tamed, absent some aid to investors.
Rick Sharga, senior vice president at foreclosure marketplace RealtyTrac, thinks all borrowers should be eligible for loan modifications.
“I can’t think of a single reason that you wouldn’t extend these loan-modification programs to investors,” he said. “Why not extend the net out as broadly as possible, rather than flood the market with more bank repossessions?”
The latest RealtyTrac data show that in October, U.S. foreclosure filings rose 25% from a year ago to 279,561. Of those, 86,664, about 31%, were on investor-owned properties.
But investment properties are apt to comprise more like half of home foreclosures, in the view of mortgage auditor Moe Bedard, president of Loan Safe Solutions, in Corona, Calif. That’s because, he says, many borrowers don’t tell the lender that a property is an investment.
A few lenders offer to do short sales and deeds-in-lieu (of foreclosure) for some investment-property owners, says homeowners’ loan consultant Eric Rice, chief executive of DyerBeech Enterprises, in San Diego. But he says loan modifications — such as reducing an interest rate or extending the term — have been rare and slow to proceed.
Out of 100 housing investors looking for loan modifications, he says maybe 15 will receive them and it usually takes “five to six months.”
“It’s not helping anyone by not helping everyone,” he said.
But Mark Leyes, spokesman for the California Department of Corporations, says the foreclosure problem is so large, lenders and government agencies have had to focus their approach. The department has been working with 10 California lenders to encourage loan modifications.
“It’s not escaped our notice (that investors aren’t addressed), but our focus has been on owner-occupied properties. We’re trying to preserve people’s homes,” Leyes said.
Sharga thinks some lenders have wrongly shunned investors as scapegoats for housing’s bubble and bust.
The Federal Deposit Insurance Corp.’s primary focus has been on helping borrowers who are owner-occupants, thus “stabilizing neighborhoods,” according to Andrew Gray, a spokesman for the agency.
“These loans are well-suited for a streamlined process where the borrower’s income and property value can be readily documented,” he said. Investment homes “require more attention on a loan-by-loan basis.”
In the view of some loan-modification specialists, halting as many foreclosures as possible is the best way to address the slide in real estate prices, and collateral damage such as reduced property-tax rolls, underfunded schools and destroyed neighborhoods.
Rice, for instance, says when an investor loses a home to foreclosure it hurts two parties — the renter who gets evicted from it and the investor.
He suggests that lenders temporarily reduce installment amounts investor-owners pay. “A permanent change isn’t deserved, but a three- to five-year plan would make sense to get payments down to a break-even level (with rents) while we get through this crisis,” he said.
Sometimes, getting borrowers to come forward and seek a loan modification can be a problem because they don’t want to admit they’re in trouble, says Salvatore Buscemi, managing director of Dandrew Capital Partners, a distressed-real-estate investment fund in New York.
Buscemi buys defaulted paper and repossessed properties from lenders. He says he’ll negotiate with any owner on a mortgage he holds — an investor or primary resident. But he says investors walk away more often than owner-occupants, as “it doesn’t hurt them emotionally.”
Bedard, who has many investor clients, calls aid bias toward owner-occupants unfair. Many investors “just want to work it out to where they’re not underwater,” he said.
An investor might hold five or 50 homes, he says, so saving those can have more market impact than saving one primary residence.
Investor Jae Kim, with four Arizona homes, is working with Bedard’s firm to seek aid. Four months into negotiating with his lenders, he still can’t tell if his loans will be modified.
“I think every borrower should be treated the same,” he said. “They’ve all put their hard-earned money in, whether it’s for a retirement home, investment or primary home.”