Investors Move In to Save Broken Mortgages

Los Angeles Times (05/01/08); Reckard, E. Scott
A growing number of investors are purchasing problem mortgages from lenders for as little as 31 cents on the dollar, which allows them to make money and still help homeowners. By taking the loans off lenders' books for less than their face value, these investors have the power to reduce mortgage amounts or make other modifications. The model is being praised by lawmakers and regulators as a means of curtailing foreclosures, especially at a time when borrowers with little home equity increasingly consider turning their properties over to the lender. FirstFed Financial Corp. is a Los Angeles mortgage lender that retained most of the loans it made in recent years, allowing it to consider 10 workout options--such as reduced interest rates, write downs and interest-only payments--before initiating foreclosure proceedings. However, FirstFed Chairwoman Babette Heimbuch says as many as half of its delinquent borrowers fail to contact the company when payment problems arise, which she attributes to their inability to forge payment arrangements with second-mortgage lenders or the fact that they lied about their incomes on the loan application. Still, experts urge borrowers to return phone calls from their lenders, with Vertical Fund Group's Gus Altazurra noting, "They're probably going to help you, given the current situation."