Even in economic misery, there is money to be made.
As the mortgage market continues to implode and loans dry up, North Texas entrepreneurs are filling the void. Like plumbers for the financial system, these middlemen work to unclog the capital markets one loan at a time, helping distressed borrowers get untangled from ill-advised mortgages or working to push through commercial real estate deals left foundering by jittery capital markets.
MILTON HINNANT/DMN
Mike Arnold's company, Southwest Home Solutions, steps in between a delinquent homeowner and a lender before foreclosure.
As owner of Southwest Home Solutions in Euless, Mike Arnold works with residential borrowers like Dawn Lyon.
The self-employed graphic designer, her husband and their four children had been in their lakefront Rockwall home for little more than a year when their $150,000 adjustable-rate mortgage reset. Monthly payments of $1,200 jumped to $1,600 in September. At the same time, the family was hit with weak business prospects and children's medical bills.
They stopped making their mortgage payments and, by Christmas, the family was considering bankruptcy.
"We'd already received notice from the bank," Ms. Lyon said. "It was a really tough situation."
The Lyons contacted Southwest Home, which bought their house for $130,000 in March. "It definitely felt good to get out from under that house, and not have to worry about bankruptcy," Ms. Lyon said.
Southwest Home charges no upfront fees. Instead, it arranges short sales, in which a property is sold for less than the amount owed on the mortgage. The lender agrees to write off the amount over the sales price.
Mr. Arnold's company steps in as the middleman between the delinquent homeowner and the lender before the property goes into foreclosure. If he is unable to renegotiate the loan terms for a borrower, Mr. Arnold said, he will buy the home from the bank at about 82 percent of its market value.
He then renovates the house to ready it for sale. The company makes its money in the difference between the two sale prices.
Many of Southwest Home's customers are police officers or postal workers who bought their first home recently and now struggle to make the mortgage payments. "There are brand-new homes that are being foreclosed on," said Mr. Arnold, who started his company two years ago. "You can still smell the paint."
The company had revenue of $95,000 in 2006, which grew to $240,000 last year.
On the other side of the spectrum toils Ann Hambly, who opened 1st Service Solutions in Grapevine almost three years ago after spending three decades working for large commercial lenders.
1st Service is also a middleman, helping buyers assume outstanding mortgages on projects. In other cases, 1st Service negotiates with lenders to modify the terms of an existing loan.
Some of 1st Service's clients, Ms. Hambly said, are owners of retail centers squeezed as high gas prices crimped their customers' budgets – and consequently, their own.
"We help guide the borrower on things he can and can't do," Ms. Hambly said.
Two years ago, Fred Gans, president of Dallas' Cornerstone Development Corp., couldn't sell 22 self-storage properties because the prospective buyer was unable to get financing to assume the $33 million debt on the $90 million portfolio.
When the investment attracted another buyer, Mr. Gans turned to 1st Service to help smooth the way.
"They could go in and create options and come up with alternatives for the borrower that they could never get for themselves," Mr. Gans said.
That expertise is especially helpful in today's more complex lending environment. Since most lenders have sold off their loans as investments to other institutions, it's no longer as simple as calling the bank that made the loan. The loan is now likely to be owned by multiple parties.
"She goes through the multi layers of bond investors, Moody's and S&P – all these entities that need to bless the deal," said Brad Andrus, president of Bridge Realty Capital in Salt Lake City, which has used Ms. Hambly's company for about a dozen projects in the last two years.
With fees starting at about $15,000, her company primarily serves large commercial real estate developers. Business has perked up considerably since the beginning of 2008, in the wake of the freeze in the capital markets.
In 2007, 1st Service's profit hit $1 million, jumping from $250,000 during 2006. Ms. Hambly, who started on her own, now has a partner and eight employees.
Home to a large contingent of back-office operations, North Texas is an ideal breeding ground for businesses that focus on helping navigate the lending maze.
As the number of these firms grows, consumer advocates advise to watch out for scams. Vulnerable homeowners who are behind on their mortgage are particularly susceptible to quick fixes.
Unsavory companies could plunder the remaining equity in the home "when the homeowner can least afford to part with it," said Todd Mark, vice president of education at Consumer Credit Counseling Service of Greater Dallas.
Though it's hard to track such fraud, "we're getting the sense that there's more and more of this happening," said Jeannette Kopko, senior vice president at the Better Business Bureau of Metropolitan Dallas. (The local BBB has no complaints about 1st Service Solutions or Southwest Home Solutions, she said.)
The groups advise homeowners to first talk to their lender about a plan to work things out. If they decide to use a third party, the owner should check out the company with the BBB and the local office of the U.S. Department of Housing and Urban Development, said Ms. Kopko.
Ms. Lyon found Southwest Home through a flier but said she did call the BBB and searched for information online to check it out. "I didn't feel like he was going to take advantage of us at all," she said.
A former social worker whose mother has been a commercial and residential real estate agent in North Texas for 40 years, Mr. Arnold said he knows that some might try to take advantage of distressed homeowners.
"I didn't create a person's misfortunes," he said. "But I'm stopping the bleeding."
As home foreclosures continue rising, delinquent homeowners may find themselves targeted by less-than-ethical companies offering help. Here are some tips to avoid being scammed:
•Contact your local Better Business Bureau and request a free "Reliability Report," which offers complaint information about companies.
•Talk to your lender as soon as you know you're in trouble. The lender might be willing to restructure your payments or even refinance the loan. Many will let you skip a few payments if your problems seem transitory, with the missed interest added to the amount of the loan.
•Beware of being lulled into a bad deal by the personal approach. Some less-than-ethical businesses stuff handwritten notes in your front door or mailbox offering to help – with your best interest in mind, of course.
•Never sign a contract under pressure and never sign away ownership of your property without first talking to a trusted family member, attorney or financial professional who can review any paperwork you may be asked to sign.
•If you feel you have been taken advantage of, file a complaint with the BBB at www.bbb.org.
SOURCE: Better Business Bureau of Metropolitan Dallas
SOUTHWEST HOME SOLUTIONS
Founded: 2006 by Mike Arnold, a former social worker Based: Euless
Objective: Helps distressed homeowners renegotiate loans, or buys homes from banks to resell later.
1ST SERVICE SOLUTIONS
Founded: 2005 by Ann Hambly, who worked in commercial lending for three decades Based: Grapevine
Objective: Works with large commercial real estate projects, helping buyers get credit to purchase the properties.
SOURCE: Dallas Morning News research
