Investors who acquire distressed home loans at a significant discount could raise the value of their investments with financial counselors who help borrowers increase their cash flow.
Mortgages that had previously been delinquent when they were acquired at a discount by an investor could sell for a higher price on the secondary market once they have been consisting paying on time.
But the dilemma is how to get shell-shocked borrowers, some who just don’t have enough income to make the scheduled monthly payment, in a position to bring and keep their loans current.
One possibility is for the investor to utilize mortgage financial counselors that can guide distressed borrowers — who can’t seem to move beyond the immediate need to find food and shelter — to improved cash flows.
The professionals would be thoroughly trained in credit card management, car loan refinances, mortgage refinance programs, medical expense management and career counseling.
With this well-rounded knowledge, these financial professionals could decrease the amount of monthly expenditures and increase the amount of monthly income.
TransUnion reports that credit card debt outstanding as of the second quarter was $755 billion. Distressed mortgage borrowers likely make up a disproportionate share of the credit card debt.
With potentially a big share of mortgage borrowers saddled with high-interest debt, they might be in a position to receive a rate-payment modification from their credit card holders. A skilled financial planner would know how to navigate this process.
He or she would also investigate whether the customer has received any credit card transfer offers that would lower or eliminate the interest rate for a period. This could provide payment and interest savings for the borrower.
TransUnion’s report reflected $1.205 trillion in outstanding automobile loans. When lowering payments is the objective, it could be possible to steer the customer to an automobile refinance to lower those payment.
A small share of distressed borrowers at some point might be able to qualify for a special refinance program, and the planner should be educated about all these programs. They should also be knowledgeable, and have relationships established with, lenders that make high-risk loans. Since the high-risk programs will likely be at a higher interest rate than the borrower’s current rate, the investor can offset the increase with a reduced loan balance (reduced from the total principal due, not the investment amount). On any loan acquired at a discount, a refinance would pay off the full balance and turbo-boost the return for the investor.
Given that some consumers could be overwhelmed with medical expenses, basic training is necessary for the counselors to understand the medical collection business and how to guide the borrower through it. They should be aware of the payment possibilities and how much room there is for negotiation of outstanding debt. They should also have a basic understanding of available medical insurance options that might eliminate recurring medical expenses currently being paid by the borrower.
In addition to lowering expenses, monthly cash flow can also be improved through increased income. While borrowers lost in a sea of debt might have too much already going with debt to effectively improve their careers, an knowledgeable third party like a counselor might be able to lead them to a better-paying position.
Career counseling should be sought not only for the primary borrower, but for the co-borrower and any other residents in the home like adult children.
In the ideal situation, the planner would have established contacts with a number of recruiters, staffing agencies and other career guidance sources.
Counselors should also understand the bankruptcy process and be able to refer the borrower to a bankruptcy attorney when there might be too much unsecured debt.
Given that investors have a mostly complete financial profile on the borrowers, the counselor’s phone call setting up the initial meeting at their home could also include a few more questions that would better round out the borrower’s complete financial profile. When the counselor meets with the borrowers, he or she can present a current snapshot of monthly cash flow — which will be a valuable education process for the borrower — and a projected cash flow after completing the process.
A simple mobile application could empower the borrower to see their progress in accurate dollars and to view updated numbers as each phase of the process is executed. Alerts could be sent to the borrower each time the cash flow improves.
A standard designation with required education should be established for the counselors.
Borrowers who have completed the process with the counselors could receive a designation that would be a credit positive for their loan since their first-hand experience would help them improve their finances on an ongoing basis. Such a designation could potentially have a positive impact on the value of the loan.
