Desperate non-performing note buyers beware! More hurdles ahead

Lender · Greater LA/Orange County area, CA · Member since 2012 · 3k+ posts · 3k+ votes

Federal policy makers want to keep you from buying and profiting from openly traded non-performing notes (NPN).

The bias is against private investors who purchase 1st and 2nd mortgages of delinquent homeowners in favor of non-profit entities who are deemed to be more likely to find ways to mitigate or negotiate favorable modifications or forgive debt entirely.

During this phase of real estate cycle, investors tempted to buy from the remaining inventory of bad paper must consider practical side of their profit and exit plan as lawmakers conspire to make it more difficult for you to benefit from loans you've acquired.

Read the full article from an industry newsletter here:

http://www.dsnews.com/news/09-30-2015/elizabeth-warren-leads-protest-of-agency-npl-practices

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Dion DePaoliPro Member

Real Estate Broker · Northwest Indiana, IN · Member since 2011 · 2k+ posts · 2k+ votes

10y

Yea, well non-profits are not all cracked up to be what the article portrays them to be. The more you try and place these loan sales into those non-profits the more you will see private equity form non-profits buy the assets.

I personally feel, as stated in the article that the new sale guidelines offer a fair administrative solution to making sure the borrowers are getting a fair shake on debt forgiveness, restructuring and if all else fails foreclosure.

The other thing I don't like, in my experience I have had many supposed non-profits and even private investors romanticize the idea of investing in NPN's. It's all about how they will change the landscape and save borrowers, etc, blah, blah. The problem is, most of that is pie in the sky. The fact of the matter is many loans simply need to be foreclosed. In addition, a distressed family probably can't afford principal forgiveness. And third I am not sure there is a bunch of actual competency in the non-profits when it comes to working with distressed loans.

The senator's heart may be in the right place but the plan of attack is less than desirable.

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Joshua Andrews
Lender · Austin, TX · Member since 2012 · 211 posts · 166 votes
10y
@Christopher Winkler Well said and good post. This is the reality for the majority of loans. Not all, but the majority.
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Patrick Desjardins
Real Estate Investor · Amherst, VA · Member since 2015 · 386 posts · 400 votes
10y
Originally posted by @Christopher Winkler:

This is a good thread!
To date, when we buy a defaulted note, we make so many efforts to contact the borrower and give them a chance to start repaying; door knocker, phone calls, letters, and they refuse to reply, then they are going get foreclosed on. It's just that simple. They have not paid a penny on their homes in 2-6 years and its saved them thousands of dollars, all the while wracking up interest & penalties that they owe.
If they would just make some effort to contact us, we can work with them to lower payments, lower adjustable rate loans that spiked, drop some interest, penalties, and principal if they are deeply under water. And in a way, Dion's statement above about that being pie in the sky to want to help them, in reality, the majority don't want the help, have been conditioned by the originating bank to NOT do anything besides send out endless form letters, and the borrowers take advantage of it.
Great post Chris. Most of these loans come from people who are making terrible choices in their lives. There are hundreds of counseling organizations to help borrowers and they still make the worst decisions.
From dedicating 50%+ of budget to housing, to renting a house without paying the mortgage on it and pocketing the rent, to having multiple luxury car leases, to taking friends and family advice that "they can't foreclose" and other nonsense...
Anyone here can draft a list of borrowers' bad behavior that have absolutely nothing to do with predatory tactics from lenders. The government can't protect you from yourself.
My personal predictions for 2016 and forward isn't so much the absence of product but that more local governments will introduce cash grabs under the guise of protecting the consumer. In the form of extra licensing requirements, for example.
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Robyn J.
Investor · Fort Worth, TX · Member since 2012 · 97 posts · 23 votes
10y
Agree with many comments. Most note buyers I deal with mod the original note. So no issue with Dodd-Franke.
I think everyone would agree, whatever the govt decides its never to help the little guy. And unless your associated with an institutional lender that's you.
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Don KonipolBusiness Member
Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
10y
We have seen that the result of government's desire to protect the homeowner from predatory lender's is that people without "A" credit can not get mortgage loans and hence must rent. So they are now left out of the number one way Americans build equity and savings for retirement. 75,000 people are saved from the horrors of foreclosure - like living payment free for 12 months - 8 years before they are forced out - and 2 million are denied the opportunity to own a home. And the "liberals" congratulate themselves on doing a great job of social engineering, believing that those people never should have been given the opportunity to borrow money.
The operation was a success - never mind that the patient died.
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