Over the last couple of years there has been a large inventory of delinquent and troubled mortgages loans available for hedge funds, investors and companies to buy. These companies, investors and hedge funds buy the troubled loans from lenders who are trying to cut their losses and get the mortgage loans off their books. These mortgage loan buyers get these loans for pennies on the dollar and in this current market, there is no shortage of troubled mortgage loans available to buy.
According to Penny Mac, a mortgage loan buyer, this year has already seen roughly $10 billion in troubled mortgages bought and sold by these mortgage loan buying companies and lenders.
Because these mortgage loan buyers usually pay only pennies on the dollar for the mortgage, they are often able to recoup their money quickly. They often try to restructure the loan to keep the homeowner in the house; if that fails, they will sell the home to someone else or foreclose on the borrower.
Most loan buyers will attempt to keep borrowers in their homes by lowering their monthly payments, their loan balances and in some cases, even renting the home to the borrower until a way to keep the borrower in the home is resolved. However, there are many loan buyers that simply want the borrowers removed from the home with the home left in good repair. These companies often offer the borrowers money to leave quickly without doing any damage to the home or appliances; this practice is called a “cash for keys” deal.
The practice of buying and selling these debts is nothing new. Investors, hedge funds and loan buying companies have been buying up unsecured debts such as credit cards, auto loans and mortgages for quite some time and have been making good money doing so. The buying of mortgage debts has increased drastically over the last couple of years as banks have started trying to purge their balance sheets in order to make room for new credit once the economy starts to improve.
These companies and investors that buy up these troubled mortgages often are able to recoup the money invested almost immediately. The way the current market stands, these loan buyers will likely be making significant profits for years to come.
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