Debt Buyers Eagerly Eyeing Treasury Department’s Recovery Plan

Alex J. Pollock of the American Enterprise Institute for Public Policy Research said he doesn’t believe Treasury will attempt any changes on how an asset’s market value is addressed on the balance sheet.

“It looks to me that if it gets addressed, it will have to be forced by Congress,” said Pollock, who advocates adding a mark-to-market balance sheet to the traditional profit and loss statements. “The accountants are dug in their defensive position.  They’re not going to fix it. If it happens, it will be because of Congressional pressure.”

Still, if traditional debt buyers partner with the Treasury to buy mortgage-backed assets, those assets wouldn’t be liquidated entirely the way collection professionals are used to. Most states have deficiency laws that allow the holder of a house note to pursue a deficiency balance judgment, giving collectors an opportunity to help banks reach a settlement on the balance, said Rozanne Andersen, ACA International’s executive vice president and general counsel.

But many note holders don’t take advantage of deficiency balance laws.

“The (homeowner) will have an ace in the hole of filing bankruptcy if they can’t come to an agreement with the holder of the loan,” said Richard Leibert, past president of USFN, a non-profit organization of mortgage banking attorney’s and trustees throughout the United States.

Leibert pointed out that the portfolio buyer has the advantage of buying the debt at a discount. Brothers said if Cavalry purchased a portfolio of non-performing mortgage loans at a discount, it would try to keep the homebuyer in the home by restructuring loans at the current market value. Foreclosed homes would be resold at current market value, he said.

“That’s the way most debt buyers would look at this thing. We’d be looking to get our money back as quickly as possible,” he said.

Collection professionals, meanwhile, could participate in the new business by helping to qualify homeowners who want to restructure their mortgages, experts say.

“It’s simply the conversation with the debtor that changes, not the role of the collection industry,” Andersen said. “It’s about finding solutions and looking at the whole credit system a bit differently.”  

Sinsley added that if debt buyers do find a way to directly participate in the government’s economic recovery efforts it would help Congress and consumers better understand, and hopefully better appreciate, the debt purchasing industry and the role it brings to making credit available and affordable.  

“The more creditors are able to recoup, the more they’re able to lend, reduce interest rates and make more credit  available,” Sinsley said.