Bankers in suits are too polite to come break your kneecaps when you get behind on your mortgage payments. So when there’s a mortgage crisis, they outsource the task to those who are more willing.
Actually this type of investing could help both the bank and the homeowner but this “investor” has certainly painted himself as a jerk in this Bloomberg article:
“You buy the mortgage for pennies on the dollar, carry the big stick, tell the homeowner how it’s going to be, then double your money very easily,” Gutierrez said.
The idea is simple… you buy a defaulted mortgage for pennies on the dollar from the bank.
You go to the homeowner and renegotiate a repayment plan.
The ethical question is just how hard are you going to negotiate. You have to make money because unless you’re sitting on wads of cash, you either borrowed the money you used to buy the mortgage or you have investors to keep happy.
But this could help some folks who are in foreclosure and still make the investor a great amount of money.
It seems though that the fellow they interviewed is just into flipping the homes. Here’s an illustration from the article:
The homeowner was $365,000 under water after buying the house with no money down in June 2005, according to a spreadsheet listing about 30 loans for sale by a national mortgage servicer that Gutierrez referred to in his truck. If Gutierrez bought the note for 20 cents on the dollar, or $73,000, he could probably get the owner to leave by giving her $5,000 for moving expenses, then sell the home for about $150,000, well below even the neighborhood’s declining market value, he said. That would leave him a profit of about $70,000.
`Buy Cheap, Sell Fast’
“I like the fast nickel,” he said. “You buy them cheap, you sell them fast and you get paid.”
Gary North’s newsletter today talked about all the $10,000 homes in Atlanta and the bankers who keep now vacant homes “on the books” at huge prices nobody is willing to pay rather than auction them off at what the market will bear, i.e. MUCH LESS. It’s a problem for the tax assessor too. North notes that one property is “on the books at $101,700. It is being offered for sale at $5,900.”
Here’s another juicy quote from North.
One agent explained the problem. The tax authorities have these properties on their books at high prices. The
prospective buyers do not want to buy these properties when they know they will be hit by high taxes. He said that he had a buyer for a $95,000 duplex. The buyer backed out when he discovered that the property was on the tax roles at $300,000.
This mortgage mess offers ripe investment opportunities. But for people in these areas where things like this are going on who managed to pay their mortgage, the “cost” will be felt in gutted equity as deflation lowers the value of all the “comparable” homes in the area AND then being asked to pay even more by desperate tax collectors.
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