What a $100 Investment Can Do for Struggling Homeowners
Not too long ago, in a predominantly black neighborhood on the South Side of Chicago, where median household income is around $35,000, a homeowner was in trouble. She found herself with a mortgage for $142,200 at 7.99 percent interest, resulting in a payment of $1,042 monthly.
Along came American Homeowner Preservation (AHP), a socially responsible hedge fund based in Chicago, which bought this homeowner’s loan as part of a pool of mortgages located in low- to moderate-income neighborhoods. AHP reduced the balance of this homeowner’s mortgage to $77,727 and dropped the interest rate to 1 percent, making the monthly payment just $250. They also settled $20,000 of back payments owed for $2,000.
It might sound too good to be true. It might sound like a scam, but it’s not. AHP has helped save 720 homeowners and counting from foreclosure, in 30 states so far.
Starting today, for a $100 minimum investment, anyone can invest in AHP and help them grow and continue in their mission to help keep families in their homes and thereby help stabilize low- to moderate-income communities.
“The 99 percent can help the 99 percent,” says Jorge Newbery, AHP founder and CEO.
AHP started in 2007 as a nonprofit that marketed itself first to underwater homeowners in low- to moderate-income neighborhoods. (“Underwater” means owing more on your mortgage than the market value of your home.) AHP would work out terms with homeowners, like the one above, then make an offer to buy the loan from the bank or hedge fund that owned it. Banks and hedge funds, however, wouldn’t play nice, despite the fact that there was a massive glut of underwater mortgages on everyone’s books after the subprime mortgage crisis. So in 2010, AHP decided to turn itself into a hedge fund and flip the script. Instead of waiting for underwater homeowners to come to them, they began to buy pools of such mortgages located in low- and moderate-income neighborhoods from other hedge funds and financial firms.
Large banks, big financial firms and hedge funds still buy and sell pools of mortgages worth hundreds of millions of dollars, in much the same way they did before the financial crisis. To these institutions, a mortgage or any type of loan is an asset. Each one typically comes with a set monthly payment for a certain period of time, with a certain level of risk that homeowners may default. When financial firms decide they need to buy or sell certain assets to maintain a certain level of risk and return in their entire portfolio, home mortgages are one of the things they trade with each other.