Private Fund Principal Reduction Plans in Perspective: Alternative to Strategic Default or Hating-Your-House

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With the way the current real estate market has been deteriorating and with the rise of many more individuals entertaining the idea of doing a strategic default, there has to be a more simple way to help alleviate the congestion that has become the back log of foreclosures and bank owned properties - that solution would be a Principal Reduction. Trinity Bay Financial has partnered with Addvent Funding to help deal with some of these issues.

It seems the only consensus regarding the housing crisis is that recovery will be slow in coming. Home values are stagnant (still falling in many areas), foreclosure numbers are increasing, and the federal government’s HAMP response is widely seen as an abject failure. These factors suggest few, if any options, for responsible homeowners to recover their lost housing investments any time soon.

It would seem the only options for those still able to pay their mortgages are to continue throwing money away into an undervalued asset, or engage in what is called strategic default, likely ruining your credit and chance for homeownership in the near future. In fact, homeowners who strategically default will be ineligible for new Fannie Mae-backed mortgages (up to seven years) and will likely face court via “deficiency judgments."

There may, however, be a third option. While the “Too-Big-To-Fail” banks and the Federal Government continue their painfully slow response, the private sector may offer a solution to some of these forgotten families who feel stuck between two bad choices: strategic default or hating their house.

Various private equity and hedge funds have entered the fray with clear and concise plans that can result in a win/win/win scenario. Once a large portfolio of residential mortgages from a given lender is collected, the fund negotiates the purchase of that portfolio at a discount. That discount is then passed on to the homeowner via principal reduction. The lender gets a cash infusion and avoids strategic default risks. The homeowner is rescued from negative equity, and the fund is able to profit while rebuilding the securitization market at the same time.

Given that different funds target different homeowners and private funds like their privacy, programs such as this have received minimal attention. Trinity Bay Financial, Inc., an authorized affiliate of Addvent Funding, has taken the initiative to gather as much detail as possible on the topic, and offer it to the pubic at:


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Zack Larson
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