Investors Fight Foreclosure On Their Own

BY KATHLEEN DOLER

FOR INVESTOR'S BUSINESS DAILY

Posted 12/4/2008

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.

Players Sidelined

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."

Now many investors and real estate agents are using the Home Seller Assist program created by John Alexander and also known as We Provide The Cash which provides them with 1% funding to purchase short sales and it is not paid back until after they flip the properties to an end buyer.