Plans to Help Troubled Homeowners

By JEN LEBRON KUHNEY, The Daily Transcript

A Carlsbad company has a new way to help troubled borrowers stay in their homes, but it's discouraging homeowners from calling a hotline or trying to sell their properties to it.
And it's not a nonprofit trying to help at the cost of donations or some government entity stepping in.

Flyer mailings to radio ads encourage troubled borrowers to "call now" in order to save their homes, but Home Equity Partners LLC is doing something different.

Rather than asking individuals to contact it for help, Home Equity Partners, an investment group, is buying pools of mortgages directly from loan servicers and bringing the refinancing options to the borrowers.

Because the company can purchases the mortgages at a discount for buying in bulk, Home Equity Partners' President Chip Larson said his company has "flexibility" when it comes to working out deals with homeowners.

The goal of the company is to examine individual loans in the pools and determine whether lowering the loan's interest rate, reducing the total amount owed or both would be a viable solution.

"We don't want to foreclose, we don't want to displace the homeowner. Our model works best when the homeowner has the opportunity to stay in the home," said Larson.

In return for its services, Home Equity Partners becomes a "partner" with the homeowner and earns 50 percent of the appreciation from the newly appraised value of the home.

Alan Nevin, director of research with MarketPointe Realty Advisors, said that it's "not a bad deal."

"If a person can get in the house and can carry the loan, a 50 percent share of the upside is reasonable," he said.

Larson said there is some risk involved as home prices could continue to fall.

However, he said, "as a company, we believe we're at or near the bottom" of the housing market price declines.

Currently, Home Equity Partners plans to close in April on its first two pools of mortgages, said Larson.

Between the two pools, there are more than 50 mortgages, which are scattered mainly throughout Southern California.

While he could not disclose the values of the individual pools or properties, he said the unpaid principal balances of the loans, or what the borrowers owe, is roughly $25 million.

He added the company is paying less than that for the pool with money from the founders as well as some private investors.

Prior to starting Home Equity Partners, Larson said the founders of the company belonged to various segments of the mortgage industry.

Larson, for example, was the managing director of Charter Funding, a retail residential mortgage banking company whose parent company, Tucson-based First Magnus Financial Corp., suffered when the credit markets began to decline.

The company closed in August 2007 after filing bankruptcy.

In early March, a $1 billion lawsuit was filed against First Magnus that alleges company executives knew it was sinking as early as 2005 and took off with hundreds of millions of dollars in bonuses and stock. Additionally, the suit alleges First Magnus was partially responsible for the financial crisis due to the large number of Alt-A loans it issued prior to filing bankruptcy.

Larson left the company when he "saw the writing on the wall" and decided to "look for a new kind of model."

That model eventually took shape in Home Equity Partners.