Debt Resolve Borrows to Create Subprime Mortgage Workout Product

Online collection program provider Debt Resolve (AMEX: DRV) is working with The Resolution Group (TRG) to provide workouts for borrowers who are caught in the growing mortgage credit crisis.

White Plains, N.Y.-based Debt Resolve reported in a filing yesterday with the U.S. Securities and Exchange Commission that TRG will loan up to $4.5 million to Debt Resolve as well as create and establish a joint venture to develop a product for the sub-prime home mortgage work-out/note modification market and mortgage collections. The venture also will integrate Debt Resolve’s collection tools, DR-Default and DR-Settle.

“This is an opportunity to use our suite of online tools to present a homeowner an opportunity to cure a default,” said James Burchetta, Debt Resolve chairman and CEO. “Our products provide the homeowners and lenders a platform to work out payments.”

Many of the already-announced government plans for default workouts still leave many homeowners in a lurch, according to Burchetta, who sees this program as a way to help lenders and borrowers not covered by some of these plans.

DR–Default, launched at the end of March, was created in response to the rising default rate in subprime loans. According to Burchetta, the application enhances Debt Resolve’s other products for collecting credit cards, student loans, utilities and other types of consumer debt.

Burchetta said that clients can integrate DR–Default into their collection systems and authorize their collection agents to use it, or place their accounts with Debt Resolve’s wholly-owned collection agency, First Performance Corp. First Performance is experienced in collecting defaulted mortgage and subprime debt.

Burchetta sees a strong need for the solution now, and in the future. He expects it to take three to five years for the current mortgage default problems to be worked out.

Irvine, Calif.-based TRG specializes in providing consulting, market strategy and planning to the mortgage, banking and healthcare industries.

Under the agreement with Debt Resolve, TRG agreed to loan Debt Resolve $500,000 to $4.5 million. The principal and interest under the notes are due and payable 18 months after the date of issuance. Debt Resolve also will issue to TRG warrants (with 30 percent warrant coverage) to purchase shares of its common stock at an exercise price equal to 105 percent of the market price per share of Debt Resolve’s common stock on the date of grant.