A builder and a nonprofit have teamed up to fight foreclosures in a new way: buy and modify at-risk mortgages -- but also make money on the venture for investors.
Investors led by James Vilardi, head of Bedford Construction Group in Valley Stream, would put together $5 million to $10 million to buy as many as 50 mortgages at discounted prices, and then the Long Island Housing Partnership would try to make the payments affordable to borrowers.
The two already partner to buy foreclosures to rehab as affordable homes under the federal Neighborhood Stabilization Program, aimed at revitalizing places hardest hit by foreclosures.
Vilardi and Peter Elkowitz, the nonprofit's chief executive, have toured foreclosed homes, knowing little of the families, only that they are gone and their homes are now the targets of vandals.
"We were thinking, 'How do we go one step before having to employ the Neighborhood Stabilization Program?' " Vilardi said. "If we were able to buy the troubled assets and reset people's mortgages, they would never get to the point where there is foreclosure . . . and now you have vacant houses throughout the neighborhood and you have neighborhood blight."
Housing advocates have accused lenders of being slow to modify loans.
But if the new nonprofit-private team controlled some loans, it could be more flexible in reworking loans, the men said. Mortgage terms could go to 50 years, the interest rate lowered, or payments temporarily suspended for laid-off borrowers.
"It would really require that personal touch to find out what each family situation was," Elkowitz said. "There's a million questions that have to be asked, but the first priority would be to keep the family in the house."
Other investors have snapped up bad loans in bulk to foreclose and sell, but under the new venture, investors would be lenders, collecting interest revenue from homeowners.
When property values rise, homeowners could refinance, and their repayments and some of the investors' profits would be plowed back into taking more "toxic debt" off mortgage lenders, according to the plan.
It's a novel approach that might appeal more to lenders with "1-800 numbers in the sky" and few roots in the community, said Bob Davis, executive vice president of the American Bankers Association.
"If you buy it at the right price," Davis said of the mortgages, "it can work."
But that's been the problem.
Since Vilardi and Elkowitz began contacting lenders and firms hired by the federal government to buy toxic debt from Wall Street, they said, lenders have quoted high prices.
"They really wanted to be made whole," Vilardi said.
He said that would cramp how loans can be reworked while returning a profit.
There are other risks. Lenders might sell loans that are beyond modification, and Vilardi and Elkowitz expect limited power in which loans they can buy. With unemployment rates near all-time highs, a homeowner in the program could be unable to pay for a long time.
But Elkowitz said private-nonprofit solutions are crucial to areas like Long Island, which have not gotten as much government attention as places with swaths of foreclosures.
However, he said he might end up with unworkable loans.
"Sometimes you do have to tell people there's no other option but you have to move on," he said. "But it would be a lot less of that and a lot more of trying to work with the family before they get themselves into a situation where they're being forced out onto the streets."