Investors who purchase distressed loans at a discount are among those in a good position to sense how problem assets might best be resolved, and one of these players believes more aggressive refis and mods and fewer government constraints on lending could help.
“Back off just a little bit and let business be done,” said Gus Altuzarra, CEO, Vertical Capital Markets. “I'm all in favor of doing it the right way and prudently but there's a lot of regulation today.”
Government programs aimed at helping more borrowers modify or refinance are making more headway but how far programs like HARP 2.0 can go still remains to be seen.
“It's great that there's a new program out there to try to improve the housing market, but it's definitely too early to tell” how well it will do. He said it might take until “closer to the end of the year to see how effective it's really been.”
One concern is that it leaves the principal “still greater than the value of the home."
“At a lower rate, yes, they will pay off that principal faster, but…it would take many years for someone even at a lower interest rate to get back to even and even more so to have any kind of equity,” said Altuzarra.
“I think the unfortunate thing is in the environment that we're in, a lot of people are having trouble making their payments…so what they are looking for is payment relief and ideally principal forgiveness on the loans they have…to a point where they will actually have some equity in the future.”
However, he said he understands why this can be a challenge for lenders to deliver, given the continuing restrictions of the highly regulated lending environment and lenders' concerns that these programs' risk parameters are beyond their own.
“In today's environment we don't have a secondary market like we had. So if a loan is going to be FHA-insured or sold to the GSEs and at the time of the sale, it doesn't pan out, there aren't too many places to go other than a group like ours as a result of the secondary market being as limited as it is today.”
The risk of discouraging borrowers who make their payments by primarily helping only distressed ones also is a continuing concern, and Altuzarra said while there continues to be some anecdotal accounts of more proactive modifications offered to borrowers with good credit histories, he thinks, “unfortunately that's not being done unless someone is delinquent with few exceptions.”
That being said, he said he did in one case receive an offer for and accept from his bank an unsolicited modification for an investment property ARM with up-to-date payments. “So I know that some things like that have been done.”
When asked about his business' approach to loan dispositions, he said, “We have forgiven principal on many occasions, we have dropped the interest rate to make it more affordable for the borrower and the borrowers perform.
“Even those borrowers we've adjusted have had about a 10% redefault rate, but...the majority of them we've put them back on track.”