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A self made billionaire, William C. Erbey, has joined the Forbes 400 richest Americans list by turning to a cutting-edge approach of re-financing homes that have negative equity. Erbey is the founder of Ocwen Financial Corporation, the biggest non bank home loan servicer in the US, with a $435 billion loan profile. Home loan servicers work as middle guys gathering payments from customers, charging maintenance fees while they settle investors like Fannie Mae and Freddie Mac.
The key to a servicer’s success is to keep the payments streaming which wasn’t an easy job throughout the financial crisis when so many customers were throwing great cash after bad as they enjoyed the equity in their house dry up. In an effort to fend off the wave of repossessions that were swamping the real estate market, numerous servicers attempted to supply home mortgage adjustment programs that extended the number of payments, or reduced the interest rate.
Principal Decrease Key to Erbey’s Success
Erbey recognized a few years after the 2008 housing market crash that it was time for a new design. This brand-new technique was writing down the principal of home loans through a program called the Shared Appreciation Modification Design. Residents who owed more on their mortgages than their homes were worth were provided the alternative of keeping their homes while having their principal lowered to a 95 percent loan-to-value ratio. The owners would get a 5 percent equity stake in their houses. The financiers would then get a 25 percent share of any make money from refinancing or a sale.
The results have actually been dramatic. Considering that SAMM totally took off in 2011, 42,000 households have actually gotten their home mortgages modified with $3.7 billion in principal forgiveness. Home mortgage payments were cut by an average of $520 per month. In spite of the fact that Ocwen describes itself as being the market leader in servicing high risk loans, it asserts that it keeps even more borrowers existing than any other company. Default rates on SAMMs are said to be less than 10 percent.
Ocwen’s profits reached $531 million in the third quarter of 2013, even more than double a year before. Its stock rates have actually been steadily on the rise, from a one year low of $33.75 to $55.02 at this writing, Ocwen has made the commitment of not just financiers, however housing advocacy organizations. This fall, Working in Communities (WIN), a Cincinnati area leadership company honored Ocwen. ‘Working in Neighborhoods is grateful for the collaboration of Ocwen Financial Corporation. They were quick to deal with the requirements of residents in risk of entering foreclosure, and they remain to develop creative solutions to keep individuals in their houses. Because of Ocwen’s collaboration, WIN has actually been able to save hundreds of houses from foreclosure in greater Cincinnati,’ shared Sibling Barbara Busch, WIN’s executive director.
A graduate of Allegheny College, Ebrey made his Master of Company Administration at Harvard Business School. At the age of 64 Erbey is now worth $2.8 billion. He lives and works in St. Croix, the U. S. Virgin Islands to make the most of its classification as a financial development area, while his call centers are based in India.
Underwater Houses Provide a Flood of Cash for Billionaire