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Wall Street 'Vulture Firms' Generate Profits by Modifying Loans

November 26, 2009

A Nov. 21 article from the New York Times caught the attention of our Riverside County loan modification attorneys because it its unusual take on the profitability of modifying loans. According to the article, investment firms that specialize in "distressed" ventures have been buying blocks of mortgage loans at a discount from lenders, particularly lenders in financial trouble. These "vulture firms" then help the borrowers refinance their loans, deals that many have had trouble reaching with the original lenders or loan servicers. The trick, the Times says, is that the refinancing comes through loans backed by the Federal Housing Administration and sold to a government-associated loan buyer like Ginnie Mae.

The practice allows the investment firms to make a profit once the proceeds from refinancing top the amount that they paid for their loans. However, the article said, the practice is drawing concern from housing market watchers, who say it puts the risk from these loans onto government agencies rather than into the hands of the investors. Consumers and federal housing agencies also say they often don't know who actually owns their loans, because the investment firms hire go-betweens to handle contact and refinancing. Nonetheless, the practice is beneficial for homeowners like Steven and Marisela Alva of Pico Rivera, whose mortgage balance was reduced from $440,000 to $314,000 by an investor that insisted on remaining confidential.

As Garden Grove loan modification lawyers, we are not sure whether this practice could be good or bad for homeowners in the long run. In the short term, clearly, homeowners whose loans are bought by these investment firms have a remarkable opportunity to reduce their mortgage balances and thus their monthly mortgage payments. However, having loans owned by a shadowy confidential investor could pose problems for homeowners who need more complicated help than a refinancing, or who want to challenge foreclosures. And if the experts in the Times article are right that this could overburden the federal agencies who ultimately assume the risks of the loans, it could ultimately harm the government's financial security -- and perhaps the housing market as a whole.

If you're facing mortgage payments higher than you can manage, but don't have an angel investor or a cooperative lender, you should call Howard Law LLP. Our West Covina loan modification attorneys have been helping California homeowners negotiate for loan workouts since the beginning of the housing crisis, so we understand what it takes to get loan servicers' attention. Even in cases where our clients have had no luck negotiating modifications on their own, we have been able to win significant changes to loans, including reductions in interest, longer repayment terms and even changes to loan structures. If aggressive negotiations are not enough to get lenders' attention, we are not afraid to file lawsuits to protect our clients' rights. Our goal is always to leave clients with monthly mortgage payments reduced to a reasonable, sustainable level.

Howard Law offers free, confidential consultations, so you risk nothing by telling us about your case and learning more about your legal options. To set one up, you can call us at 1-800-872-5925 or contact us through our Web site.