A small California company has started to take advantage of the sentiments of many homeowners that they would be better off walking away from their home by attempting to formalize the strategic default strategy and actually enabling homeowners to shift equity loss to their lender and buy their house back at today’s market value[1]. Home Liberty, a real estate startup, is emphasizing that it is not encouraging homeowners to stop paying their mortgages, nor is it guaranteeing success of its strategy. However, if a homeowner opts to go through strategic default, the company will attempt to buy the home or the note at short sale. The company is starting small, focusing on homes in just two California counties and requiring clients to have a 680 credit score, a household income of at least $60,000 and a $5,000 down payment. An Alamo investor group has agreed to finance the company’s initial mortgages at rates of 10 to 12 percent. The company’s CEO, Mark Moore, has said that he believes that the default clause in mortgage agreements is “an explicit termination clause” and that there is nothing wrong with what the company is trying to do.
Do you think that this company is doing a good thing for homeowners?
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[1] http://www.bizjournals.com/sanfrancisco/news/2011/05/23/foreclosures-strategic-default.html
The ethics of strategic mortgage default varies with each case. People who used homes to pull cash out or who default on credit cards are clearly gaming a system that incorrectly rewards them. Those I see as unethical.
But people who got affordable home mortgages in the 2004-2007 period had no reason to expect the current plunge in value CAUSED by unethical banking practices hidden from buyers. Yet the same banks will not modify those principal values now and expect homeowners to bear the full cost. In Strategic Default at least the burden is shared, which is more equitable and more ethical than forcing the homeowner to stay underwater for a decade or more.
If banks had been forced to use “bailout” money to correctly revalue their assets, we would all be moving forward by now. Instead we are still sliding down.
Of course it’s good for the homeowner, but I thought it was illegal for the buyer of a short sale to resell the property to the original owner?
The banks have failed the homeowners, the administration has failed the homeowners, the only real help has come from entreprenuerial real estate investors.
Unfortunately this is also where the unscrupulous came from but instead of weeding them out the administration throws a blanket over everyone in a way that also forces out those providing real help. I’m sure it won’t be long before this practice gets shut down by the administration to protect their precious bankers.
Even though this and many other alternatives that can or could have helped homeowners either keep their homes and or make a quicker recovery have been available from the start, since they are beneficial to the homeowner and not the banker don’t expect to see long term positivity. Great Strategy guys!
How can i get investment information.
You can give the lender a cash out sale at any time. It is up to the lender to take or reject the offer.
With the investor charging 10 to 12 % on the short sale,it doesn’t make sense to make a payment that puts you right back in the hole.
If you want to keep the property,get a loan commitment and make an offer
I Hope CEO, Mark Moore has a good lawyer. They is the dumbest thing I have ever heard of. Of course it’s unethical and will put him in the cross hairs of the banks, Feds, Department of Banking, Attorney generals office and the homeowners who if they cant buy the homes back will be pissed and sue him anyway. The reason he is doing it is he feels it’s a great way to under cut the legitimate investors that will not offer the sellers such a sweat deal for them. He thinks he will destroy his competition which he will for a short time until the legal challenges catch up to him. He is not the first idiot with that idea and he wont be the last he is just probably the first idiot to expose his scheme to the public. This same scam was done in Jersey City NJ by another investor who was too weak to tell the homeowner I’m not selling you back this house, that investor went to jail. Good luck CEO, Mark Moore, home you stash some cash for your kids while you serve 5-10 in a few.
Dear REJournalOnline,
Thanks for covering HomeLiberty, and thanks for getting the facts as accurately as you have.
You are correct that HomeLiberty is focusing on Alameda and Contra Costa counties, but our program has been approved for all of California and Arizona. We currently have customers as far away as San Diego.
I love what iFrances captured in her comment. The media focuses on the homeowners that gamed the system by pulling equity out through HELOC’s, or by entering mortgages they knew they could not afford. But, that is a tiny fraction of actual homeowners.
Of the 11 million families that are underwater *right now*, over 10 million made every single payment, and did absolutely NOTHING to cause the housing bubble or the subsequent crash. They did everything right.
Yet… every one of these families are forced into a “first loss” position in their mortgage. They are required to lose every penny before the bank loses a single dime. For these families, the down payment and the principal payments they made so responsibly are GONE. For most, this represents their entire life’s savings.
Now, I don’t want to blame the banks 100% for the crash. But, they certainly have more culpability than these 10 million underwater homeowners.
Yet… It is the banks that refuse to even consider working with underwater homeowners that have “done the right thing” and made their payments. I think this is unconscionable (and, it’s just bad business).
In the main post, REJournalOnline asked “Do you think that this company [HomeLiberty] is doing a good thing for homeowners?”
Obviously, I am a bit biased, but I try to be open and honest as well. If there are ways we are *not* good for the home owner, my company wants to know.
We have structured our program to offer the very best outcome to the homeowner given the reality that they have a very recent default in their credit history.
Our program allows the homeowner to:
* Keep their existing home
* Immediately re-establish positive equity (90% LTV)
* Lower their monthly payments
In addition, our FastTrack to Freedom program applies 100% of the first 13 payments to principal reduction *without* interest, so the homeowner is able achieve an 80% LTV or better by simply making their payments on time.
If they refinance in the first 4 years, they will typically save over 50% of the interest expense they would have paid under the original loan.
We explored the rent-to-own, or lease back model, but rejected it because it is not good for the homeowner. With RTO the investor buys a discounted asset, and a motivated renter, and secures an agreement to buy the asset at a price higher than current market value. That is a very good situation (for the investor), and it gets better because in addition they get a 2 to 5 year annuity (in the rent/lease agreement) which has a real net present value, but for which the investor didn’t pay a cent.
HomeLiberty explored this, but it disadvantages the homeowner unfairly, and it sets them up to lose the house if they can’t qualify for a loan to repurchase.
It was very difficult, but this is why HomeLiberty put together a program where we qualify the owner with a loan originated by HomeLiberty from the very beginning. The best part is that by extending a real 30 year mortgage to the homeowner, we have provided the single best way for them to repair their credit and qualify for a competitive loan as fast as possible. This is good for HomeLiberty, and great for the homeowner. As a benefit, it also frees the capital so we can help another underwater family.
I hope you forgive me for the longish post, and I hope you find it helpful. HomeLiberty is not one of the many companies trying to “take advantage of the sentiments” of underwater homeowners in distress. We have seen this problem affect family members and friends first hand. We have not seen any programs that accept non-hardship homeowners with severe negative equity. So, we created HomeLiberty with the sincere desire to provide fair, honest, and dignified solutions for underwater homeowners.
I would sincerely like to hear any feedback, good or bad.
Mark Moore, CEO
HomeLiberty, Inc.
Note to REJO Readers: We are currently working to contact Mr. Moore directly so that you can learn more about how his program works and how these processes are approved on a state-by-state basis. Stay tuned! ~Carole
Although the article only asks if this is good for the homeowner, there is an implicit question about whether this is right.
When a mortgage becomes severely underwater (125% LTV or $100K negative), we believe the banks have a moral responsibility to try and work out a mutually agreeable compromise including substantial principal forgiveness (not just forbearance).
When the banks refuse to even consider a fair compromise, they leave the homeowner no alternative but to exercise their perfect right to default.