I think Rick hits a home run with this article.  It clearly outlines the problems we in the business have of dealing with the debt instruments that are on these homes.  I call them veggie-matic loans which were sold with the same type of excitement and wild abandonment that have been associated with veggie-matics the world around.  Pamala Meador.


Foreclosures and other opportunities

Have you ever noticed the changes in late night ads and infomercials for real estate
opportunities? During a boom period, the late night ads are all about how to buy with
nothing down and how to build an empire of rental houses.  People who bought the
programs tell all speak glowingly into the camera about how much they are making in
a week, and it seems they’re always filmed from some beach in Hawaii where they’ve
presumably retired to.

But isn’t it kind of amazing how quickly the ads change once the real estate cycle turns?

Over the last few months, I’ve noticed a not-so-subtle change, as most of these late night
ads now tell us how much money there is to be made in foreclosures, short sales, and
other side effects of a difficult real estate environment.

Are these ads accurate?  Is there big money to be made during times of great stress in
the housing markets?

They answer is that there can be, but that it’s gotten much more tricky this time around.

Why do I say that?

In the old days, and this may have been just  15 years ago or less, dealing with
foreclosures and the like was pretty simple.  There was a good chance that the loan was
owned by a local bank or savings & loan, and many realtors developed relationships
with the foreclosure departments tat these banks.

When good deals came along, the bank would call the realtors they worked with, and
everyone made money.

Like a lot of things in modern life, things have gotten much more complex.

It sounds strange, but it’s not so simple to understand who owns a given loan anymore,

You’ve all heard of securitizations, right? It’s taking a large number of loans and
putting them into a mortgage-backed security of some sort and then selling that
security on Wall Street.
It’s like a bond that’s backed up by a whole bunch of individual mortgages.

That part sounds pretty simple, and whoever owns that security really owns the
underlying mortgages.

For a number of reasons, we now have financial “engineers” who take a lot of thee
securities and then slice them into thin pieces.  They’ll then take these thin slices from
maybe 10 different mortgage securities and combine them into new securities.

I know it sounds strange, but a single loan could end up being a part of 5-10 different
securities. One might get the interest payments of the loan, while a totally different
security might have the principal payments. One security might absorb the first 10%
loss on a loan, while another security could absorb loses that exceed that 10%.

If you’re getting just a bit confused, well, it is confusing.

When you’re dealing with foreclosures, short sales and loan modifications, at some
point you need to talk to the owner of that loan.  At some point you need the owner of
that loan to sign off on what you’re trying to accomplish.

If it’s unclear who owns that loan, you’ll most likely need a decision that can only come
from the owner of that security, or perhaps the custodian.

And not to scare you, but here’s a very possible scenario:  The loan you need a decision
on could be part of a mortgage security owned by the Michigan State Teachers
Retirement Fund. But another part of that loan could be owned by an insurance
company in Japan.

How the heck will you ever get a decision on your proposed loan modification or short
sale?  Unless you know your way around this world of securitizations, or unless you
know someone who does, you might not ever know that the custodian for these
securities can make the decision.

My point is quite simple:  Financial engineering by Wall Street has made things more
complicated, but there is some good news to this situation.  There are mortgage
professionals who understand this process and who can guide you through it
successfully. Intero Mortgage is here to help.

Rick Soukoulis
Chairman & CEO
Intero Mortgage