Saturday, December 3, 2011

This is the Mortgage Help people need!

What happens when you have a giant recession, high unemployment, stagnant wages for those still employed, and financial institutions now willing to work with borrowers?  An increase in mortgage defaults.

 There doesn't seem to be any help for those borrowers.  The government has tried to help with a variety of programs, but the borrowers don't ever get to see them.  Since the borrowers are not seeing any help, they are defaulting and being forced out of their homes through foreclosure.

I had a genius idea a few years back on how to help all parties involved.  Because I did not think of a cool name for it, I will just refer to it as: Mortgage Help (I know, it's a really boring name, but if you have a problem with it, leave a comment with a cooler name):

It is a pretty simple premise where there would be four parties:

  • Borrower (homeowner)
  • Mortgage Help company
  • Mortgage holder (this would likely be the Mortgage Help company, so it's more streamlined)
  • Co-borrowers (these are clients who would be instrumental in making things a win-win-win situation)
Each of the four parties would be assisting each other in making this a functional program where people all gain something useful.  The borrower will stay in their home, the co-borrower will gain a better credit score, and the mortgage holder gets paid.

The way it would work is completely based around two separate industries working together: Credit repair and Mortgage lending.

The Mortgage Help company would be the facilitator in this plan, working with the Mortgage holder in identifying and locating the distressed Borrowers.  Both the Mortgage holder and Borrower would sign a contract stating that they would be okay with assigning additional Co-borrowers to the loan (without assuming the payment risk should the primary borrower default) on a semi-annual basis.

Once the contract has been signed, the Mortgage Help company would find Co-borrowers.  They would charge each Co-borrower $600 to participate for a 6 month period.  The payment would be accepted up front, so there would be no risk that the co-borrower would default.  This $600 payment would be divided into 6 equal payments of $75 (the remaining $25 would be for the Mortgage Help company for their expenses.  We gotta eat too!).  The Co-borrower would be assigned to a Borrower's loan, and the $75 would be paid to that balance each month for the 6 month duration.

The Co-borrower will get a better credit score for this because it is considered long-term, non-revolving debt.  FICO has come down recently on revolving debt, saying that it does not factor very much into a person's credit score.  Long-term debt does factor heavily into the score, and this is why it will be a benefit to the Co-borrowers.  They will get a higher credit score as the Borrower makes their monthly payment, because they are considered a borrower on the loan.

There are no limits as to the amount of Co-borrowers that can be assigned to any particular loan.  So, the Borrower gains a huge benefit, because the more Co-borrowers there are on the loan, the less the Borrower is required to pay to make the minimum payment.  It also provides a benefit if they pay the normal amount, because the principal is reduced, thus making the time spent on repayment lower.

Finally, the Mortgage holder gains a benefit from this because the loan is highly unlikely to default because there will be more people paying on it.  The loan will not be wholly contingent on one person making all of the payments.

This business model, although unfamiliar within both industries, would provide a benefit to many people in many ways.  Let me know your thoughts on this.

No comments:

Post a Comment