Investing in Home Loans Online

Posted by: Chris Palmeri on July 1, 2009

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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 lfc.com, a commercial real estate auction site, and Freedom Realty Exchange (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.

 

About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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