In a sign of the times, the Parsippany, N.J., brokerage FHM Mortgage Group LLC says about a third of its prospects now are troubled borrowers who are seeking refinancings and are referred by collection agencies.
The company, which began working with the agencies in September, says the 10 loan officers in its call center have arranged $12 million of refis through the program. The new loans are usually guaranteed by the Federal Housing Administration, Fannie Mae, or Freddie Mac.
FHM Mortgage says it helps both struggling homeowners and those seeking to collect on their debts by getting refis approved and closed quickly.
The typical customer is making payments on the current mortgage but "has debt at high interest rates and is having trouble keeping up" with other forms of debt, Nick Mastrandrea, FHM Mortgage's president, said in an interview this month. "Refinance rates are still historically low, and there are still programs that are available to people in this situation."
The brokerage has partnerships with three collection firms, and it hopes to add more, Mr. Mastrandrea said. "The reason that I find that this is a good business model is because many of the mortgage companies are shying away from this business."
FHM Mortgage, which was founded last year, is licensed in seven states but does most of its business in New Jersey.
In addition to the collection agencies, it gets referrals from real estate agents and from previous customers. Mr. Mastrandrea would not disclose its total volume or name the collection agencies working with his brokerage.
It also works closely with Business Processes Redefined LLC, a Parsippany outsourcer that manages collection agencies on behalf of large and midsize credit grantors and debt buyers. The outsourcer encourages the agencies to refer their debtors to FHM Mortgage.
If a borrower indicates interest in a refi from FHM to the collector over the phone, then that collector will perform a "hot transfer" by bringing an FHM Mortgage loan officer into the call.
Lauren A. Irwin-Szostak, the president of Business Processes Redefined, said partnering with FHM Mortgage has increased the amount of debt recovered for her firm's clients by 13% since September.
"As a direct result of the upset in the subprime space, our industry was nearly abandoned. In turn, debt collectors were no longer empowered to introduce refinancings as a solution for getting paid," Ms. Irwin-Szostak said. "FHM stepped up."
Keith T. Gumbinger, vice president at the Pompton Plains, N.J., research firm HSH Associates, said he was unsure why a borrower would trust a brokerage that has partnered with a collection agency.
However, "borrowers that are in trouble usually seek any potential avenues for relief," he said. "And I suppose if this one sounds viable, they may look at it."
Mr. Mastrandrea said his company cultivates trust by informing borrowers of every possible option and not forcing them to take loans with unaffordable interest rates.
In addition, he and Ms. Irwin-Szostak said, the fact that one FHM loan officer is assigned to the borrower for the duration of that borrower's troubles may allay customers who have previously been passed from one representative to another.
Mr. Mastrandrea acknowledged that FHM Mortgage cannot help some homeowners yet, because of the credit crunch.
He also said he does not track how many prospects referred by collectors get loans through FHM, though he estimated the figure at 5%.
"It's a smaller percentage than we'd like it to be," he said. "It is getting more and more difficult now to help everybody we talk to."
Mr. Gumbinger said that he was uncertain about the effectiveness of FHM Mortgage's strategy and that he could not imagine "a huge audience of lenders" willing to serve borrowers like these.
"In light of market conditions, how likely is it that you're even going to be able to place people into new mortgages?" he asked. Nevertheless, "it's certainly an interesting way to find prospects for new mortgages."
