WSJ: Fall Behind on Mortgage to Make Money...

It's the dirty little secret Houston real estate investors have known for some time. A homeowner needs to stop paying the mortgage before a bank will negotiate.

Never mind that the house is not worth the loan amount anymore.

Never mind that the homeowner cannot make up the difference between the High loan amount and the low market value of his home.

The homeowner must show the bank an offer it cannot refuse.

"We are not paying anymore, so you deal or you squeal."

Bankers understand delinquencies. But they only understand reduced equity position due to falling home values when they sell a property, or, when they take one back through foreclosure and have to sell a property.

Saturday's Wall Street Journal reported that this tactic of "not paying" has become slightly more mainstream.

One Houston "short sale" real estate investor with whom we spoke today who asked not to be identified said, "We never tell homeowners who can afford to pay to stop paying. We do tell them that we cannot help them with the bank until they fall behind...Most people get the hint, but only a few actually act on it."

More common is that the homeowner cannot afford it, and is about to fall behind anyway.

So, how did investors figure this out in the first place?

The banks told them.

As in the WSJ story, a Countrywide rep told the homeowner exactly what to do - fall behind.

This issue however could cause problems for loan servicers such as Countrywide.

Mortgage investors in the secondary market often carry the risk for defaulted mortgages. When a servicer informs a borrower how to "game the system", it is the holders of packages of loans who suffer.

The servicer is actually a fiduciary agent of the package-holder - suggesting a breach of responsibility.

The real estate investor, however, is not a fiduciary of the homeowner - and the homeowner may suffer serious harm from employing the "fall behind" tactic.

Creditors do not like to see pending foreclosures, even if they are averted through a short sale.

Responsible investors will help a homeowner negotiate a deal that keeps the homeowners credit relatively clean.

Real Estate Designers offers totally innovative solutions for your software development, Internet programming, real estate web design and hosting needs. Our service includes domain name registration and real estate web design. Real Estate Designers provides the complete solution including design, application development and marketing.

source: houstonrealnews.com