As homeowners across the United States continue to struggle to stay in their homes, lenders and investors have taken different approaches in response to the crisis.
As of January 31, more than 1.3 million homeowners have received a permanent modification on their mortgage through the Home Affordable Modification Program (HAMP).
The U.S. Treasury Department reports these homeowners have saved an estimated $25.5 billion in their monthly mortgage payments since the program went into effect.
Jorge Newbery’s view of the program’s accomplishments isn’t as rosy.
“HAMP is (President) Obama’s plan to assist families,” says Newbery, founder and CEO of American Homeowner Preservation LLC. “When they designed it, they tried to ride a line between being perceived as enabling families who are doing strategic defaults and those families who really had medical emergencies, unemployment or reduced employment that made it difficult for them to continue to make their payments.
“The end result was a program that was not very effective.”
One tool that Newbery is using to reduce the number of foreclosures is crowdfunding. His company creates distressed mortgage investment opportunities and then reaches out to a larger pool of investors in search of a good match.
“Instead of using a handful of large investors, now we can make projects available to a more vast audience of investors by making the initial investments smaller,” Newbery says.
Instead of a minimum investment of $250,000, investors can get in the door at $10,000.
New opportunity
By transitioning to a crowdfunding model, the company has been able to lower the financial barrier of entry for investors and secure more funds. AHP has secured more than $4.5 million in crowdfunded investments. Newbery says the investments have a social impact and the ability to generate returns for individual investors exceeding 9 percent.
More importantly, they have allowed families to stay in their homes.
“If they want to stay, we can typically drop payments dramatically,” Newbery says.
The program is possible thanks to a change in federal law that allows investment opportunities to be marketed to broad audiences, something that was made illegal following the Great Depression.
The change could open the door to more inappropriate lending practices, but Newbery says there is always a risk when money is involved. He says consumers should always be on the lookout for potential scams.
Newbery’s company has taken a number of steps to assure clients that their money is safe.
“Our loans are not held by our company,” he says. “They are held in a trust. The trustee is US Bank. If anything were to happen to us, the investors are the beneficial owners of that trust, so they would still have protection and own their loans.”
He says the business community has been supportive of crowdfunding.
“The returns we offer are higher than market, so that’s attractive,” Newbery says. “But we do have a number of investors who say the specific draw is that their dollars are having a specific impact on families that are in this crisis. It’s modern-day philanthropy. You’re getting a return, but you’re also achieving social good.” •
Learn more about American Homeowner Preservation LLC at:
Facebook: www.facebook.com/AmericanHomeownerPreservation
Twitter: @AHPInvesting
How to reach: American Homeowner Preservation LLC, (800) 555-1055 or www.ahpinvest.com
