When the ‘Lender’ Becomes a Debt Collector

A troubling trend in the industry right now is the increasing willingness of lenders to sell off their bad mortgages to companies that amount to little more than debt collection agencies.

In our business, we focus on short sales, and we’ve had several sales disrupted recently when loans were sold, sometimes at the last minute. We understand that lenders are squeezed, just like everybody else in this environment, but if more and more of them choose this escape route to get out from under bad loans, it could get ugly.

Lenders at least understand the housing market, and in most cases can see the advantages of a short sale. They can end up with at least most of the loan repaid, avoiding the costs of the foreclosure legal process and maintaining an empty property.
Some of the people they are selling to just don’t understand this industry and see the mortgage as just another bad debt, one that they can bully the debtor into paying back if they just harass them enough.

It’s understandable why lenders might take this route. With government pressure on them to watch every step in the foreclosure process, doing business is getting tougher. They know that even if they move through to foreclosure, it’s going to be a long time before they see any money coming in, and what does come in will be far less than the loan value.

So when someone comes in and offers a lender maybe half the value of the outstanding loans on a bundle of distressed properties, the cash might look good. Even though they’re taking a hefty long-term loss, at least the cash infusion lets them get back into business.

But for the homeowner, the new “mortgage holder” means a new level of harassment. There may be a little bit of a lull, while the loan ownership transfer works through. But then the stress starts up again, only worse.

Where we at least had a chance of arranging a successful short sale, with the new ownership of the loan, there’s just no interest. That’s after we have spent the better part of a month just trying to figure out who is the new owner of the loan.

In one of the latest examples, we tried to explain that the short sale had been approved by the old loan owner, and we were ready to start selling. But the new loan owner said no, we want a full payoff. We tried to explain that a fully payoff just isn’t going to happen; it’s a foreclosure, after all. But they preferred to use their own tactics and play it their way. They also don’t seem to understand that if they’re holding the second mortgage, a foreclosure could wipe them out entirely. It doesn’t sink in. Where we used to be able to talk with the lender’s negotiators, the only people we can get on the phone now are debt collectors.

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