More On The Connection Between Loan Workouts & Buyers Of Discounted Mortgages

Five recent media reports have addressed the move of investors towards purchasing discounted mortgages with the view of seeking a loan restructuring with a financially strapped homeowner.

A story by The Associated Press reports:

• Guess who holds your mortgage now? It's your friendly neighborhood hedge fund. Dozens of hedge funds, private equity groups and other investors have plunged into the beaten-down mortgage market in recent months, buying tens of thousands of distressed loans and foreclosed properties around the country.

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• "We're much easier to deal with than a bank," said Jacob Benaroya, managing partner of New Jersey-based Biltmore Capital Group, a hedge fund that's buying up to $100 million in mortgage debt per year. "We've bought (the loan) at enough of a discount that we can make special arrangements with the borrower."

For more, see Hedge funds investing in delinquent mortgages (Many claim that they can alter terms of loans much easier than banks) (If link expires, try here).

The New York Times reports:

• [U]nder [a] new initiative, called the Housing Assistance and Recovery Program, or HARP, the [Federal] Home Loan Bank [of New York] lent $6 million to Magyar Bank, based in New Brunswick, N.J. The First Baptist Church of Lincoln Gardens, in Somerset, N.J., which provides counseling services through its First Baptist Community Development Corporation, identifies homeowners who are in danger of foreclosure, then negotiates with the lender to buy out the loan.

• Using proceeds from the Federal Home Loan Bank, Magyar Bank puts up 70 percent of the remaining balance. HARP representatives expect that lenders who hold the distressed mortgages will write off much of the remaining 30 percent, rather than incur a foreclosure.

For more, see Struggling, but Staying in a Home.

For three other stories, see:

• The New York Times: An Investment Firm That Prospered From Past Crises Turns to Mortgages (Reports that Merrill Lynch unloaded $31 billion of mortgage-tied paper for 22 cents on the dollar to an investor group),

• Bloomberg News: Discounted Mortgage Notes Can Stop Foreclosures (Buying defaulted mortgages at a discount, the mortgage investor encourages and enables owners to stay in their properties and avoid foreclosure. His company buys the loans, not the homes, then employs a "work- out, not kick-out'' approach in working with homeowners),

• Bloomberg News: Recovery From Worst Housing Slump Since 1930s Comes With Angel (Reportedly, one individual investor buys bad mortgages a dozen at a time for a fraction of their face value from lenders. He then goes door to door to negotiate lower payments for homeowners or pay them to move so he can sell the house).