A partnership has been formed to help reduce the number of bank foreclosed home in Long Island, New York.
Investors led by Bedford Construction Group head James Vilardi plan to invest from $5 to $10 million to purchase about 50 troubled mortgages at bargain prices. The Long Island Housing Partnership will then try to reduce mortgage payments to make them affordable to borrowers.
The nonprofit-private partnership had already collaborated to purchase foreclosure properties to rehabilitate as affordable houses under the federal government’s Neighborhood Stabilization Program which was launched to help revitalize neighborhoods severely affected by the foreclosure crisis.
Long Island Housing Partnership Chief Executive Officer Peter Elkowitz and Vilardi have toured foreclosed houses in the area. Vilardi explained that the partnership’s goal is to buy troubled loans and modify them to help homeowners avoid foreclosure and remain in their properties. He added that the program is also a way to make sure that properties at risk of foreclosures would not become neighborhood blight.
Both Vilardi and Elkowitz explained that if the partnership controlled the troubled loans, it could be flexible in modifying mortgages, which may include extending the terms up to 50 years, reducing interest rates or temporary suspension of payments for homeowners who lost their jobs.
Elkowitz said that it would take a lot of work to determine the homeowners who are really in a dire situation and need immediate help. But the major priority of the partnership is to help families remain in their houses, he added.
Other investors purchased troubled loans in bulk, foreclose on them and sell. But the Long Island partnership is unique in that investors would act as lenders and collect interest profit from homeowners.
Under the partnership’s plan, homeowners have the option to refinance in the event that property values increase. Profits that will be earned by investors and repayments of homeowners will be used to buy more troubled loans from mortgage lenders.
Banking experts said that the approach may appeal to lenders, provided that the partnership buys the troubled loans at a reasonable and right price. But this is where the problem lies. Vilardi and Elkowitz claimed that since they started contacting lending companies and firms tasked by the federal government to purchase toxic debts, lenders have been asking for high prices. Furthermore, the partnership is expecting limited power on the type of loan it can buy.
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