'Vultures' Save Troubled Homeowners

Wall Street Journal:

Anna and Charlie Reynolds of St. George, Utah, were worried about losing their home to foreclosure last year. Then they got a lucky break--from an unlikely savior.

Selene Residential Mortgage Opportunity Fund, an investment fund managed by veteran mortgage-bond trader Lewis Ranieri, acquired the loan at a deep discount and renegotiated the terms with the Reynolds. The balance due was cut to $243,182 from $421,731, and the interest rate was lowered. That reduced the monthly payment to $1,573 from $3,464, allowing the family to stay in their home despite a drop in Mr. Reynolds' income as a real-estate agent. "It was a miracle," says Ms. Reynolds.

Read the whole story: Wall Street Journal

Comments

[Troubledwawa]

12:42 AM on 08/19/2010

"But only the lucky few have so far benefited from Selene or other distressed-debt investors"
---------------------------

Hey, to the ones who get into program like this and can make something happen for themselves - I say all the power to them.

These "distressed-debt investors" are looking at alot of low hanging fruit due to the newness of the idea. The article mentioned "0.25% of U.S. home loans outstanding". Right now it sounds like a lot of work negotiating with the debtee to sell the note, and at the same time making sure that there is a current homeowner that can still qualify for the new mortgage. It'll be interesting to see how far this program can go once the low hanging fruit is gone.

[Old Claudius]

08:10 PM on 08/18/2010

It might help all if we note the difference between "vulture" and "predator" (also known as "vampire" or sometimes "hyena"). Vultures, in the world of finance, swoop in to pick up dead and dying. Although they necessarily engage in triage, they do not credit default swap insure and then kill for insurance pay-off profits. If a "corpse" can be revived or resuscitated and made to arise and walk again in the marketplace, they do not knock it in the head. They do, of course part out the remains of corpses they have to euthanize or give a coup de grace to.

[jabreal00]

02:23 PM on 08/18/2010

A recent article I read in NYTIMES reveals that the next wave in those who will default are those who took out equity loans in their homes. Many times people got tens of thousands to hundreds of thousands of equity loans. They used this money to finance vacations, boats, cars, home improvement or to pay down credit card debt. Now that their homes are underwater, many do not feel like they need to pay back these loans or want loan modifications. These are the ones who are threatening to walk away from their loans.

I think it's horse-ish. I feel no sympathy. Banks share a brunt of the housing bust but these people also are culpable.

[IfIonlyknew]

02:19 PM on 08/18/2010

That's pretty sick that a bank would sell your motrgage at half price but not be willing to renegotiate
with the owners of the loan.

[pauldeba]

05:58 PM on 08/18/2010

If they renegotiate a non-performing loan, the accounting vaue is ZERO.

If they sell it, it is profitable.

More to blame the accounting rules than the bank policies.

[IfIonlyknew]

06:03 PM on 08/18/2010

I don't understand but thanks. So it's all in the pencil lead more than the property.

[Birdman72]

12:52 PM on 08/18/2010

We've saved bald eagles, peregrines, whooping cranes...I'm glad to see the avian world reciprocating for once. Sorry dodos:(

[walkawayfrombanks]

12:31 PM on 08/18/2010

if ohbummer can't create a public bank that will refinance or modify the predatory loans for primary homes,

he should get the heck out of the way and let the vulture capitalists do what they are good at.

[FoonTheElder]

01:03 PM on 08/18/2010

Most vulture capitalists didn't get their name for their charitable deeds. They are usually best at acquiring the mortgage and then kicking the occupants out of the home when there is more money to be made elsewhere. I would say that this article is more the exception than the rule.

[LivingDebtFree]

02:03 PM on 08/18/2010

They would probably do that, but given current market conditions, the most money is made by allowing them to stay in their homes (as the article states).

[trishinpitt]

01:06 PM on 08/20/2010

Ah, did you you make up that name all by yourself? How creative.

[LivingDebtFree]

11:49 AM on 08/18/2010

The market is finally able to do what it is supposed to do. All the bailouts did was delay the inevitable and line the pockets of bureaucrats' friends in Big Banks and Wall Street. This exactly follows the principle of "Creative Destruction" in capitalism when it is ALLOWED TO WORK. What has been happening isn't capitalism. It was socialism for the rich at the expense of the poor.

[FoonTheElder]

01:07 PM on 08/18/2010

Creative destruction is what caused the economy to decline by 50% from 1929 to 1932. The director of this policy was Andrew Mellon, robber baron.

Andrew Mellon (millionaire Secretary of Treasury from 1921 to 1932) was the trickle down king of his day, and was the creator of the policies that created and continued the Depression in the first place. His advice then isn't much different than the Republicans today causing the economy to contract by almost 50%.

"Mellon became unpopular with the onset of the Great Depression. He advised Herbert Hoover to "liquidate labor, liquidate stocks, liquidate farmers, liquidate real estate… it will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up from less competent people."

Additionally, he advocated the weeding out "weak" banks as a harsh but necessary prerequisite to the recovery of the banking system. This "weeding out" was accomplished through refusing to lend cash to banks (taking loans and other investments as collateral), and by refusing to put more cash in circulation. He advocated spending cuts to keep the Federal budget balanced, and opposed fiscal stimulus measures."
http://en.wikipedia.org/wiki/Andrew_Mellon

[LivingDebtFree]

02:00 PM on 08/18/2010

1. The decline of the economy wasn't caused by "Creative Destruction. Creative Destruction is a natural occurrence (except when the government steps in). The decline of the economy was caused by overspeculation in the market (caused by over-indebtedness due to a loose monetary policy that created a credit driven boom just like recently happened to us in the housing market), the severe drought in a still highly agricultural society.
2. Andrew Mellon's policies didn't cause the Great Depression. What you cite him as having done was done after the depression already started. Being tied to gold as we were made things worse.
3. His "trickle down" policies worked. He said that if you tax the rich less, that they would be willing to pay more (instead of moving money to tax free bonds and the government would collect more.)

Andrew Mellon's plan had four main points:

1. Cut the top income tax rate from 77 to 24 percent
2. Cut taxes on low incomes from 4 to 1/2 percent
3. Reduce the Federal Estate tax
4. Efficiency in government

By 1926 65% of the income tax revenue came from incomes $300,000 and higher, when five years prior, less than 20% did. During this same period, the overall tax burden on those that earned less than $10,000 dropped from $155 million to $32.5 million.

He also advocated taxing investments more and wages from labor less. So there is your "trickle down king".

[myth buster]

09:42 PM on 08/18/2010

But Hoover didn't do that.

[mrspiffy]

11:49 AM on 08/18/2010

By low. Sell high.
http://yieldpig.blogspot.com/

[blueken]

10:50 AM on 08/18/2010

This seems to one of the few "fiancial innovations" that pass the mutual benifit sniff test. Mortgage backed securities, not so much. The idea that a bank writes a mortgage, than bundles it up and sells it, then some Wall Street investment firm takes those mortgages and bundles them up with more motgages seems to me to beg for a housing bubble. All it takes is a small decrease in the selling price of real estate (notice I didn't say value) to start the roller coaster ride down to the bottom. I paid off my house a couple of years ago and was surprised to find you don't get to burn the mortgage anymore. That's probably because no one can produce it. What you get is a notice of title free and clear. I think it was Volker who said "Name one finacial innovation in the last 30 years besides ATMs that has any real value at all?"

[JScott]

10:37 AM on 08/18/2010

Financial and RE sectors of the economy adapting to the new reality and finding a way to make money altho not gobs of it like they used to.

[lucy92118]

10:31 AM on 08/18/2010

So I am an investor that made gobs of money thru CDO's, (that I knew would eventually burst) I was smart enough to get out with my cash before the bubble burst, then I waited by the sidelines while the whole thing (I helped create) fell apart. I waited while the system 'bleed it's self out" then I went back to the investors that helped me get so rich (the pension funds so desperate to get back into the casino I helped create) to get more money to get back in to clean up the mess. I make even more money now by cleaning up the mess I helped create? Wow, this is the American Dream? Sad, just damned sad.

[Graywolf48]

10:38 AM on 08/18/2010

Not the American dream, necessarily, but it is the American way.

[PlayTOE]

10:29 AM on 08/18/2010

If his fund pays $50,000 for a loan with a $100,000 balance due, for example, it can make a profit even if the borrower ends up paying back only $70,000.

He is a nice guy for making the deal, but it begs the question ~
~ Why didn't the homeowner get an opportunity to buy the mortgage for $50,000 ???

[LivingDebtFree]

11:52 AM on 08/18/2010

Because Wells Fargo, Bank of America and the like are incompetent. And they have no incentive to help those people out because our great and generous government keeps on bailing them out instead of the "little people".

[PlayTOE]

12:13 PM on 08/18/2010

I'm less sure of it being simple incompetence. The system looks rigged with the banks working hard to keep it that way.

[ThePeacemakers]

03:07 PM on 08/18/2010

Maybe Wells Fargo, BofA and the like are still Zombies Banks?

You can't negotiate with a Zombie.

[Patriot86]

11:53 AM on 08/18/2010

My husband was laid off last year...we ended up owing the IRS also...so I was one month behind on my mortgage...running this way for a a since June when the IRS was paid...well BOA refused to consider a modification and threatened me with foreclosure for one month late-I had paid late fees as well...one. I was able to negotiate a repayment plan to catch up...but I talked to the government people about it and they said BOA simply would not do loan modifications...almost always found a reason they did not have to.

[PlayTOE]

12:11 PM on 08/18/2010

fanned.
I hope that some day you can remortgage with a different bank and get a better deal.

[peskime]

09:23 AM on 08/18/2010

Opps, I mean I wish this vulture.......

[peskime]

09:23 AM on 08/18/2010

I was this "vulture" would be able to buy my securitized loan from its servicer, Smells Fargo, an incompetent and draconian company

[Graywolf48]

10:45 AM on 08/18/2010

You have Wells Fargo holding your paper? You have my deepest sympathy. My mortgage was once sold to them, what a nightmare they are to deal with. Their mortgage servicing company must be supervised by Henry F. Potter (from a Wonderful Life fame). I was so glad the day I sold my home and got away from them. Even after closing they came back and tried to extort more money from me. Fortunately I had a good real estate attorney and he smacked them down quite quickly and I ended up getting a refund from an overcharge. Wells Fargo used to have their stages robbed, now they rob their customers.

[usna73]

09:20 AM on 08/18/2010

There are many cracks in this plan. First, they acquire very few loans to work out. The banks simply have not been forced to mark this debt to market by the Treasury. It is still extend and pretend.

Secondly, Selene is operating on huge margins. So, they only want to skim the cream.

I have a much better idea for the taxpayer, homeowner and the community based investor. I've presented my plan to my Congressman and he loved it, but it has not traction in the Congress.

Community based investors like myself, who would both know and want to support their communities ( heck, we live here and own homes too) could buy the notes and conceivably pay more for than Selene( the former note owner and government prefer it). If the Feds would continue to back the new debt ( loaned to investors via community banks, like SBA type), folks like me would accept a ROI half or what Raineri is seeking. Under current market conditions I'd think 7.5% would get plenty of support. The homeowner would be asked to "share" upside with the new investor, paying down the new debt at the current market owners equivalent rent.

The homeowner under this plan is incentivized to stay in the home. The investor has a long term interest in the upside, unlike a lender like Selene. The deed could be put in escrow to protect the interests of the investor in the form of a kind of partnership/LLC.

[marsjo]

09:38 AM on 08/18/2010

I think your idea has some really good aspects to it. I'll have to read it through a couple more times and I'm sure that what you sent your congressman was a bit more detailed than what you can post in 250 words on Huff Po.

One thing that struck me in the article and something I'd like to see if you have any idea how to deal with is the "bundle security" issue. What struck me in the article was that Raineri goes after is loans that are not tangled in the Mortgage Back Security problems that is the major obstacle to homeowner relief program that the administration is trying to implement.

It seems to me that when our "friends of Wall Street" Republicans, most notably former Sen Phil Gramm of TX, allowed mortgage back securities the eventual nightmare was begun. We seem to need some restriction that who writes the loans, services and owns the loan, no buts about it.

How can we start to unbundle those loans?

As for your idea getting traction in congress, I suggest sending Barney Frank and Chris Dodd copies. As well, try sending Move On dot org a copy of your ideas.

[usna73]

09:53 AM on 08/18/2010

Yes. Thanks for the pass. Yes, the above is exactly 250!

Thanks for the ideas, especially MoveOn. I have a link to Eli there.

Most of the notes are RMBS which have been securitized ( bundled). The key to unlocking this resides in the accounting rules that require MTM. Only the Treasury can make that happen. The "owner" of these notes ( even sliced and diced) is likely not the ultimate obstacle. Rather, it is the banks we call TBTF, Citi, BofA and Wells. They get fees and also hold almost all the seconds, HELOCS, etc that surely are worthless.

There is no magic to cure this thing. It was estimated that the bubble bust already wiped over $4 trillion in equity. I guess that if this just leaks further, we have another $2 trillion to go, prolonging the economic agony of no small business lending and no jobs.

If I were Pres. Obama I'd commit all my political capital and reelection campaign on fixing this. We can't recover any other way. Otherwise, we are Japan, without the internal debt structure. China loaned us this money and the dollar's value hangs in the balance. We will see a collapse. This is not a cyclical issue, it is a secular one.

[HamletsMill]

09:47 AM on 08/18/2010

I like it. Fanned! Maybe you should put up a web site outlining the idea and how people can start with it across the country? Also perhaps contact Ellen Brown regarding her "State banks" plan in conjunction with this idea.

http://www.youtube.com/watch?v=yeB-2x7Yy0c

http://www.youtube.com/watch?v=QU0XiklHPMc

Also perhaps contact Catherine Austin Fitts about this idea too? She has connections.

http://solari.com/

Everyone who is thinking outside the box should be talking with each other! Conventional thinking has just totally destroyed the financial system and economy of the United States. I just read "The Big Short". It is just unbelievable what Wall Street did to the American people.

[usna73]

10:03 AM on 08/18/2010

Thank you for the ideas. I will investigate.

Just imagine if this could be implemented in markets throughout the nation.

Just yesterday, I read where Bill Gross of PIMCO suggested that we need to "nationalize" the housing lending business. Well, in practice the implementation of such an idea is best done at the "local" level. SBA like backing was one of the effective tools we used to allow community banks who know their customer and his/her plan, to move the economy decades ago.

I don't have a catchy name for this, but it a co-op idea of sorts. Big banks ruined this country. We need to "take it back", without the BS tea bagger innuendo. Just good old fashioned American pride and ingenuity.

P.S. I am also investing in housing rehab through a public private partnership which directs stimulus funds and local land bank to bring back low income neighborhoods.

If this works I will try to develop a pool of capital to leverage the benefits. I'm willing to do this for a very modest fee. I'm not a vulture. Carrion makes you vomit!