By Mike Colpitts
A Cincinnati, Ohio company has launched a program, coming to the rescue of homeowners at risk of foreclosure. American Homeowner Preservation is the first private company to offer troubled homeowners and renters a way to stay in their homes without being foreclosed.
The program is being called, “Cash for Clunker Mortgages” but it isn’t related to the federal government bail-out program, only getting its name from the former auto aid plan. “The original plan was to work with homeowners at risk of foreclosure,” said Jorge Newbery, director of American Homeowner Preservation. The company was started as a non-profit in 2007 matching distressed mortgage borrowers with private investors, but became a for profit company to handle a rising volume of homeowners in every U.S. state.
AHP negotiates with banks on behalf of homeowners in an attempt to get lenders to approve a short sale on a home, reducing the mortgage on the property and then sells the home to a private investor. The owner or renter stays in the property under a five year lease, and then buys the home back at a pre-determined discount rate once their credit is repaired enough to obtain a new mortgage on the property.
The plan is similar to a lease option, but the tenant or former homeowner is not required to put a down payment or deposit on the property.
FHA guidelines presently require a three year period after a foreclosure to obtain a new mortgage. The homeowner can buy back the home at any time during the five year period. The firm has private investors willing to buy up to $100-million in mortgages, and they are working through real estate agents to find homeowners who want to stay in their homes to take part in the program.
“Licensed real estate agents in every state can refer their clients to us for the program and we’ll work with them to get the loan negotiated and reduce the mortgage,” said Newbery. “Our goal is to keep families in their homes.” AHP already has more than 800 deals in the pipeline. “We have even had some (tenants) where the tenant wants to stay in the home when the owner was being foreclosed that we have helped.”
The “Cash for Clunker Mortgages” program is purchasing non-performing mortgages that are in default and is experiencing a higher success rate negotiating short sales with banks than most owners or real estate agents. Nationally 8 to 12% of all short sales are currently being approved. Almost 1 in 5 short sales are approved through AHP, substantially reducing the mortgage amount, according to Newbery.
AHP makes bids on mortgages within 48 hours and can close deals within a few weeks. However, most short sales are taking at least four to five months to receive a response from lenders on these days since mortgage companies are flooded with properties in default.