Brokers are being offered a new service that purports to save their clients from the costly last resort of a mortgage default, allowing them to get back on their financial feet.
The new service, ARAP (Agreed Risk Adjustment Purchase), acquires mortgage debt from struggling clients, to protect their equity and allow them to remain in the property.
ARAP shareholder and executive director Greg Campbell said it is designed to help property owners with reasonable equity who can’t satisfy primary and secondary lending criteria.
Campbell said the genesis for ARAP actually came from discussing the delinquent files of finance brokers and meeting with a number of brokers and their clients.
“In nearly every case the client had an overwhelming desire to retain the property, however crippling default interest rates and mortgagee legal fees meant they not only lost half the remaining equity, but they lost their credit-ability to re-establish themselves.”
Campbell said ARAP is a real estate transaction where the property is held in trust for the client. ARAP receives a fee, which Campbell said is comparable to normal real estate agency commissions and less than half the cost of refinancing in the secondary market. As part of the procedure, the finance broker is also paid, and can retain the client after the ARAP process.
“At the conclusion of the ARAP term the once potentially delinquent client will most likely satisfy normal lending criteria. ARAP provides finance brokers with an opportunity to make income from delinquent clients at both ends of the transaction,” Campbell said.
Campbell said that before the “pioneering” ARAP option, there has been no financial incentive for brokers to manage their delinquent borrowers.
“The industry does not presently have a solution or service for delinquent borrowers. It is therefore extremely difficult if not impossible for a broker to arrange finance for one.”
From the incumbent lender’s perspective, they are also able to avoid the process of mortgagee-in-possession while still receiving the repayment of the debt.
ARAP assessments to date have varied in asset value from $390,000 to $15m. Campbell said ARAP had assessed over $200m worth of property yin the last 6 months.
Campbell said he was first attracted to ARAP because of its genuine ability to assist families and business people experiencing mortgage stress.
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