Tuesday 25 February 2014

How Ocwen-Altisource are hurting homeowners

Altisource spun off two companies - Altisource Asset Management Company and Altisource Residential in December, 2012. Altisource Asset Management Company (AAMC) acquires nonperforming residential loans for Altisource Residential, who intend to renovate and rent out as many properties they can acquire from the acquired loan portfolios. In turn, Altisource Residential pay management fees to AAMC.

The borrowers may want a loan modification or a short sale but that is not what will benefit Altisource Residential most. Altisource also do not have the financial strength of a Wells Fargo or a Bank of America to hold on to delinquent loans for long. Most borrowers won't qualify for FHA refinance due to high debt ratios or lack of sufficient income. Altisource Residential's motivation to acquire properties does not allow room for short sales. What benefits Altisource most is foreclosure.

Investors, like Altisource, buying NPLs to increase their rental portfolios is a cause for alarm because they stand to profit by pushing people out of their homes, said Kevin Stein, associate director of the California Reinvestment Coalition, a San Francisco-based tenant and consumer advocacy group.

“They should be modifying those loans to keep the homeowner in there, but it runs counter to their business model,” Stein said. “They shouldn’t be in the business of buying distressed loans for the purpose of foreclosing on people.”

Acquiring a delinquent loan is cheaper than directly buying the underlying security (property). Let me give you an example. Let's say there is borrower who owes Bank of America $100,000 on an FHA backed loan with a property worth $80,000 as the underlying asset. Bank of America file a claim with FHA when the borrower defaults. They stand to lose nothing as the loan is insured by FHA. Companies like Altisource acquire such loans in an FHA auction for amounts much lower than the property value. They can, however, turn this price difference into an advantage only if they can acquire the property. This typically happens through foreclosure.

Those properties which cannot be rented out will be sold through Altisource (RHSS) agents like David Judd on HUBZU.com. Mind you, the likes of David Judd don't get the listing commissions. The listing commissions go to RHSS - a unit of Altisource. Altisource also make money by earning escrow and title fees, property preservation fees, closing coordination fees and more.

In this manner, Altisource intend to acquire properties for a fraction of their cost and then rent them out or sell them, earning rental income, management fees, real estate listing commissions, escrow and title fees and more. Their entire business plan depends on their ability to ACQUIRE properties. Short Sales, loan modifications, forbearance etc. are obviously not as profitable. What makes business sense is foreclosure. Altisource have vested interests in promoting foreclosures. By promoting foreclosures and rentals, Altisource are working against America's stated policy of increasing homeownership. They are working against the interests of United States and its people.

In the financial year 2013, AAMC acquired 13500 loans. However, this is just a modest beginning.

(The author, Saurabh Singh, is a student of the Buddhist monk Thich Nhat Hanh. He is a Foreclosure Prevention Activist and a vegan. He is also a member of People for Ethical Treatment of Animals(India), Consumer Advocates in American Real Estate, UNITES Professionals and supports charitable causes and crowdfunding.)


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