1 July 2009
Investing in Home Loans Online
Posted by John under: News .
Investors purchase stocks online. Will they buy somebody’s mortgage over the Web as well? A start-up called BigBidder.com hopes so.
The backers of BigBidder already run fre.com), a site that sells homes online.
Paul Lyons, a senior vice president of the company, says BigBidder is auctioning off home loans owned by banks, mortgage companies and other investors. The loans are both performing and non-performing—--the latter meaning the homeowners aren’t making their monthly payments. Lyons says much of the site’s sales are in “re-performing” loans, meaning the home owner was delinquent until the lender changed the terms of the loan and now the borrower is making payments again.
BigBidder charges the buyer a fee of from 1% to 5% of the loan purchase price, depending on the size of the loan. Some recent deals include an $83,000 first mortgage carrying a 9.8% interest rate on a 3 bedroom house in Gas City, Indiana. It sold for less than half of the loan amount. Meanwhile, a $100,000 adjustable rate second mortgage on a home in North Hills, California currently carrying a rate of 6.2% sold for just 25 cents on the dollar. Both of those loans were performing.
Lyons says documentation, such as the original loan application and credit reports on the borrower, is available on the Web site. I’m not recommending anyone dive into this kind of investment, certainly not without a lot of thought and research. Judging by those discounts the sellers don’t think these loans are going to get paid back in full any time soon.