There was some interesting news this week for Florida homeowners facing foreclosure. A Fort Lauderdale-based private equity firm called US Debt Ventures announced on Monday that it has bought a pool of about 7,000 non-performing first, second and third mortgages from one of the country’s five largest lenders, and it plans to try to get things back on track by offering loan modifications to the homeowners.
This is an exciting development because private equity firms haven’t tried this strategy before. After the housing bust, cash-rich private equity firms did invest in troubled banks and even bought failed institutions, says Miami banking analyst Ken Thomas, but they didn’t become actively involved in trying to set up foreclosure prevention programs.
The banks themselves, fearing the high re-default rates among homeowners in foreclosure, haven’t provided much in the way of workable loan modifications, even with the incentives offered through the government’s Home Affordable Modification Program (HAMP).
“This is absolutely what we need,” says Thomas. “Foreclosure is not in anyone’s best interest – not the borrower, not the lender, and it hurts neighborhoods.”
US Debt Ventures has bought about $500 million in non-performing mortgages, plans to buy more
According to US Debt’s CEO Todd Billings, 733 of the non-performing mortgages the firm has bought so far are in Florida. The firm plans to immediately start contacting homeowners in the hope of negotiating sustainable loan modifications.
“We’re going to go one by one and come up with a strategy for each individual homeowner,” said Billings. In some cases, foreclosure will be necessary, but the firm’s priority will be to negotiate solutions with the homeowners.
The strategy is to take over the loan modification process that banks have been so unsuccessful at, despite the fact that it typically costs much less to modify a mortgage than to foreclose.
Big mortgage banks “don’t want to be in the bad loan business,” says Billings, but the loan modification process is both necessary and financially sound, so it makes sense for someone to step in and take on the close negotiations with homeowners that could save their homes and make their mortgages profitable again.
This was US Debt’s fourth foray into purchasing blocks of non-performing mortgages in the past few months, and Billings said the company plans to spend hundreds of millions more to buy mortgages and negotiate loan modifications in the years to come.
Source: House Keys blog, South Florida Sun-Sentinel, “S. Florida firm buys $500 million of bad home loans,” Paul Owers April 18, 2011