Within the next 30 days, a Web site that has been educating prospective investors for several months about the defaulted first mortgage markets in Southern California and one county in Nevada plans to go national and compete more directly with some of the better-known foreclosure sites like RealtyTrak.com, ForeclosureRadar.com and Foreclosures.com.
Foreclosure Trackers, a five-year-old company based in Huntington Beach, Calif., launched its site last fall. Its CEO, Robert Lee, tells BUILDER that his company is drawing from a variety of sources, including county and bank records, from which it will aggregate and process data on its site about foreclosed mortgages and homes across the country. The site will also provide color photos of each property from an appraiser and a host of other data including the home's transaction history, property tax assessments, beneficiary and trust information, as well as reconnaissance about the house itself (such as square footage, number of bedrooms, and lot size) and surrounding neighborhoods.
ForeclosureTrackers.com already lists about 100,000 properties in California and Nevada, updated daily. The site also offers foreclosure seminars that are designed for investors who want to get into defaulted mortgages. Lee says that when his Web site goes national, he will probably lower the monthly subscriber fee to $69 from its current $79. He also anticipates that the vast majority of investors who are educated through his site's seminars will ultimately use Foreclosure Trackers to transact deals for them. Lee is hoping that his Web site can generate $5 million in revenue this year.
"What Robert is trying to do is to organize and educate local and institutional investors, and there's a marketplace for that," observes James Glockner, who handles West Coast acquisitions for Bayview Financial, the Florida-based mortgage-finance company, which has issued more than $27 billion in asset-backed securities over the past decade and has exchanged information with Foreclosure Trackers about different mortgage portfolios. "Everybody wants to get into REO properties, but when they do they see how incredibly hard it is."
In an interview earlier this month with TheOrange County Register, Lee observed that the only investment strategy he believes makes sense in a market with so many foreclosed homes is investing in defaulting and performing mortgage notes. Not surprisingly, that's what Foreclosure Trackers has been doing since he started the company in 2003.
Lee, a fast-talking, gung-ho entrepreneur who says his past includes some real estate investing and construction work, tells BUILDER that some of the information on his Web site comes from the network of lenders Foreclosure Trackers contacts every day. His company bids on defaulted mortgages and then goes back to the homeowner and attempts to work out their debt through a loan modification and credit restoration.
Its methodology is as follows: Foreclosure Trackers, which has 25 employees, performs due diligence on a particular distressed property and gets a broker price opinion on it. Any bid on a defaulted mortgage it offers starts at 50 percent of the value of the note (not the loan itself, Lee is quick to point out). "Whatever the value, I divide it in half," says Lee. So, for example, if the loan is $400,000, its value is probably closer to $300,000, and Foreclosure Trackers would bid $150,000. If it wins the bid, the company then approaches the homeowner and offers to work out the loan, which in this scenario it would value at around $250,000.
Lee says that many banks are eager to discount and sell defaulted loans "rather than initiate a foreclosure that will take two years of legal fees, plus more devaluation." (About half of the states in the U.S. are judicial foreclosure states, which means it can take a year to complete the foreclosure process. In those states, Foreclosure Trackers bids lower for defaulted mortgages because its back-end costs are higher.)
Once Foreclosure Trackers becomes, in essence, the lender, Lee says his intention is to keep owners in their houses by modifying the loan downward and offering to work out the debt, primarily by helping owners raise their credit scores within a certain period (ideally 60 days) so they can repurchase the mortgage through another lender at a more reasonable interest rate than the loan they had defaulted on in the first place. Lee says his company has foreclosed on only about one-fifth of the mortgages it acquires, "and most of those are vacant homes" where the owner can't be located.
Foreclosure Trackers gets financing from private equity investors and hedge funds (which Lee declined to name specifically). It looks at about $700 million in defaulted mortgages per week, bids on about $70 million and has its bids accepted on about 10 percent of these. The company only bids on first mortgages, which narrows its field. Last year, it expanded its reach by acquiring the portfolios from Mortgage Lenders Network and Aegis Mortgage, the latter's portfolio being around $25 million.
When BUILDER interviewed him on Wednesday, Lee had just been informed that one of the country's largest investment brokerages was offering its $3 billion construction and mortgage portfolio for 38 cents on the dollar. His company is too small to bid on something that large right now, but his goal for Foreclosure Trackers is to have its bids accepted on $250 million of defaulted loans in 2008 and $1 billion in 2009. To make that leap and to be able to bid on bigger bank portfolios, Lee says he needs to bring in another hedge fund as a financial partner, which he is currently looking to do. "I need the big boys behind me for that."
John Caulfield is senior editor for BUILDER magazine.
Learn more about markets featured in this article: Los Angeles, CA.