Could New "NOTE REDUCTION" PROGRAM Be The Cure?

Question

According to how this program works - it sounds like the panacea to all ills for anyone who's underwater - homeowners and investors alike, not to mention that it would basically render ALL forms of debt re-negotiation such as loan mods and short sales obsolete, as well as preventing further foreclosures  and REOs. It sounds like something the government should have done in the first place: automatically reduce, or in this case, replace all negative equity to that of just under current market value (basically, marking to market) so long as the borrower can still find a way to make good on the new note.
                                        
                                        Supposedly, a $5 billion dollar hedge fund is the investor that negotiates a deal with the lender's asset management dept. (not loss mitigation) for a bulk purchase of the owner's note (along with dozens of other owners who hold notes at the same lender) at a deep discount of the properties' current market value for say - 60%. That investor then turns around and re-writes the notes at anywhere from 90-95% LTV based on today's appraised value to the owner/borrower at prime + 3-4%, fully amortized. So, the investor makes a nice spread of 30-35% and the owner gets to keep his property with a loan that is justified and affordable - and most importantly - restores the owner's equity position from negative to positive.
                                        
                                        I wonder if the hedge fund is the same one that is touted to invest in the bulk REO deals that are being pitched by various fee-based REO guru sites on the web. The similarity seems more than a coincidence when I first heard about this.
                                        
                                        In any case, it sounds great thus far, doesn't it? At least in theory. 
                                        
                                        When I asked a couple of these firms how many deals they've closed thus far, I either got an vague reply - or that because it's so new (barely a few months old), no one has completed a deal. I was told, however, that one of the actual note investors had successfully closed someone's loan but have yet to confirm it.
                                        
                                        Here's a link to just one of many independent agents and firms now starting to offer these programs. Click the arrow on the video to listen an in-depth pitch on the program:
                                        
                                        http://lowermymortgagebalance.com/
                                        
                                        Another interesting issue:
                                        
                                        On a side note, the firms soliciting this program are charging an advance "processing" and "administrative" fee of nearly $4,000 per loan, however, NOT in California. This leads me to think that California's recent Senate Bill 94 (which prohibits charging upfront fees on any type of loan modification or foreclosure abatement program) might have had an impact, BUT, this type of service is NOT considered either a loan modification or anything to do with stopping a foreclosure, according to my State's mortgage division. It is simply the purchase and subsequent secondary market sale of a note which does not fall within the definition of either. Still it is strange that they are only compensated on the back end (once the deal closes) for those with loans in which the property(s) is/are in California - which seems like they are, in fact, doing so directly because of SB94. 
                                        
                                        I would love to hear from others that are familiar with this program - or just your commentary. I would love to believe this has or can work!

Account Closed · Answer

Sorry, but the advanced fee of $4,000 makes me suspect that it is a con job.

If a business can really deliver, they get paid when they get the job done.

Rodney Williams · Answer

The exception is a local bank that "Portfolios" the loan (keeping it in ther possesion.

The note that was sold by the originating bank is divided into many different peices and put into various pools. This is why it takes so long to get a short sale approved. The rep. for the investors has to approve the discount.

In my opinion any upfront mod fees are suspicious, I've seen more than a few taken this way.

Bill Gulley · Answer

Hey, back to the loan mod. I just thought that there is no reasone some of us on here could put that together and confront lenders with the option. Anyone interseted? Bill

Tim Silvers · Answer

On the topic of advance fees, would you pay an attorney in advance on a loan mod when there's no guarantee or do it yourself and only use an attorney if need be? Just curious.

Bill Gulley · Answer

An Attorney is exempt from many license laws, but I'm pretty sure they are not exempt from loan mod rules. If they practice law, I would pay a retainer and amounts for work done, if they were doing a loan mod, no, I would not hire an attorney for a loan mod, but if I were going to sue them, sure! Bill

Bill Gulley · Answer

Hi again, it has to be a con job! You know that not everyone will "qualify" and that is where the money is made, so yes, I'm sure the is a con element to it!
                    
                    Speaking of cons, not to change the subject because this is an excellent one, but Quicken Loans automatically charges $500.00 to your credit card on the electronic signature to see if you qualify and what you can get! This happened on a re-fi, even if you are rejected, to someone I know!  I'll post the whole story later. Just another of many rip offs in lending!

Tim Silvers · Answer

With what option?

Tim Silvers · Answer

Yes, I did recall something like what you've suggested being done by certain lenders. Sort of like an equity share with the lender contingent on future restoration of equity. I like the "reward" incentive to the homeowner for keeping current. Unfortunately, trying to get the bureaucrats at large to do anything logical that may actually "cure" our crisis is nearly impossible - at least before the next big wave of foreclosures.

As the wise man sayeth: The only way to get something done is to do it yourself!

That's why I think the note reduction idea is the best one I've seen yet - at least in theory - or until I see first hand results.
 
The only part I don't like is the advance fee issue if your properties are outside California.

Bill Gulley · Answer

Hi, Last Feb, I sent this suggestion to the White House with another spin on it, that the write down be made as a subordinate amount (within the same mortgage) on a non-interest bearing, non-accrual basis. This portion had several options. A disount over time could be available for those who were successful in making payments as agreed and/or retained to finance  hedge fund accounts on an amortized basis. If a homeowner sold a property, say in ten years after the market had risen, the deffered amounts would be required to be paid based on a per centage of equity appreciation. If a property sold at a later date for more than the original amount, the deffered amount would be to offset losses and repay the taxpayer.  
          
          I'm not trying to lay claim for what is going on, but it was the basis of the suggestion. I never think that anyone really has an idea that someone else didn't think of too, it's just the one who acts on their ideas first that wins. Thanks for posting this information, I'll check it out! Bill