The home loan mess is a tough customer to bring under control. Everyone agrees with that. The government and the private sector have tried all sorts of cures to change its course, with very little so far to show for their labors. Mortgage foreclosures are going to continue by some reliable estimates at least at the current pace well into the new year.
There is, however, a new creative initiative afoot to help restore the tattered mortgage market to health.
Behind the effort is a man called Lewie Ranieri, who is largely credited with crafting the mortgage-backed securities in the 1980s.These instruments turned out to be a great catalyst to increase home ownership by funneling money from investors to mortgage firms for making loans to buyers. Today's immense problems are unrelated to the basic concept of these innovative securities, although some tend to disagree with that.
To fix the current mortgage chaos Ranieri has cooked up a rather workable plan. To execute it he founded the Selene Residential Mortgage Opportunity Fund that has raised thus far $825 million from various investor sources. First Selene purchases delinquent home loans at a serious discount, for which there should be plenty of opportunities now as more lenders are teetering on the edge. It, for instance, just won the auction for a portfolio of foreclosed properties for $80 million from the bankrupt Taylor, Bean & Whitaker Mortgage.
It will then work with the delinquent homeowners to get them up to speed with their mortgage payments.First off the principal balance is slashed to somewhere where it makes sense to the borrower. Selene workout specialists help them out with budgeting by acting as counselors, and not as debt collectors. For the plan to bear fruit it's important to get the borrower to believe in home ownership again, have pride in the property and make timely payments. Selene is spending lot of time on this step, it appears.
Over time these mortgage loans will have a stable payment history, according to projections, and then Selene will sell them at a profit. This is the third step. The current investors will get a juicy return and predictably this success will inspire others to buy into the plan, making even more money available to help distressed homeowners. Right now the project is still quite small, an $825 million fund is a drop in the bucket in the huge residential mortgage market. But the formula is simple and makes sense and has a lot of upside to it.
Southern Nevada - including Las Vegas, Mesquite, Summerlin, Mountains Edge, Henderson, Green Valley and Aliante - mortgage borrowers in distress could be beneficiaries of this program, as long as the loan they have ends up in Selene's portfolio. The home loan foreclosure outbreak is still with us and any new ideas that could help resolve it should be readily looked at, tested and preferably accepted. So far the foreclosure prevention work has been lender-oriented and with meager results. This plan puts much more emphasis on the mortgage recipient and shows good promise.