A franchiser that has made a name for itself helping local real estate investors buy, fix, and sell “ugly” homes plans to start buying repossessed properties and nonperforming and performing whole loans in bulk.
Mike Stoner, the vice president of finance at HomeVestors of America Inc., said it would be “a one-stop shop” for small and midsize lenders with mortgage portfolios “that they need to liquidate.”
In an interview Thursday, Mr. Stone said his privately held Dallas company has a “built-in” market for the “real estate owned,” or repossessed properties, it plans to purchase: its roster of more than 200 franchisees in 20 states. However, it is equally interested in buying loans as it is in buying homes.
Franchisees buy run-down homes cheap from sellers who need to close fast. This year HomeVestors will add franchisees in Washington, Utah, Indiana, Nevada, and Wisconsin, Mr. Stoner said.
Several articles in local newspapers over the past two years have described its “We Buy Ugly Houses” billboards as well known. Entrepreneur magazine ranked the company as the 53rd fastest-growing franchiser in February.
HomeVestors announced Thursday that it would start buying properties and loans July 1.
Many HomeVestors franchisees already deal with lenders in situations where homeowners fall behind on payments and a “short sale,” or discounted payoff, may make more sense than foreclosure.
Some franchisees also buy REO properties. The franchiser has not done so yet, but Mr. Stoner said there is an opportunity to “accentuate what they’ve been doing.”
He would not say exactly what types of mortgages it hopes to acquire, or how much, except to say it will look for pools of assets worth up to about $50 million.
Market watchers say that figure is about as big as nonperforming loan pools come these days. However, some said strong home price appreciation in recent years has kept the supply of problem loans in check; they said the sector could grow as interest rates rise.
Mr. Stoner said HomeVestors would service troubled loans with the hope of working something out with the borrower rather than foreclosing. If it can turn them back into “viable mortgages,” it will “probably” sell them.
HomeVestors already holds and services some performing loans (though it uses a subservicer in some states). The loans it currently holds come from its finance arm, which lends money to franchisees to buy and rehabilitate properties. These loans are “competitive,” and typically paid back after 140 days, he said.
Sometimes they convert to longer-term mortgages. In these cases, where permitted by state law, the franchisee finances a buyer’s purchase and uses payments from the buyer to pay back its debt to HomeVestors.
Franchisees will pay about $300 million for properties this year, and HomeVestors plans to finance “a percentage of those,” Mr. Stoner said. Last year they bought 3,425 properties, 82% more than they did in 2002. HomeVestors also helps franchisees with training, advertising, and leads.
Observers said it would be tough to compete with specialists that buy and cure bad loans.
“There are a few people who’ve been around and gotten very good at this,” said Thomas K. McCarthy, a managing director of Carlton Advisory Services Inc. These buyers’ funding costs have dropped, because the business model has matured and the buyers have demonstrated an ability to resecuritize loans quickly, he said.
However, other observers said the franchisees could find opportunities harder to come by if house appreciation slows.
“In an up market,” a rehab-focused real estate investor “makes lots of money, only for the simple reason that during the six months of work on the property its value escalates 10% to 40%,” John Talbott, the author of “The Coming Crash in the Housing Market” and a former vice president at Goldman, Sachs & Co., wrote an in e-mail. “This will not continue.”
