SEPTEMBER 2004

Loans to Borrowers in Bankruptcy Chapter 13

The 1.5 million U.S. households filing for personal bankruptcy every year offer a sizeable niche market for lenders—if they could just figure out who was least likely to get into financial trouble again. Apparently, First Hallmark Mortgage Corp has found a way to tap this market. The New Jersey-based mortgage lender targets borrowers in Chapter 13 bankruptcy repayment programs who own their homes.

Chapter 13 involve a court-administered debt workout program through which the borrower repays a sizeable portion of his/her unsecured debt, at the same time maintaining ownership of their assets such as primary residence and automobiles. First Hallmark specializes in debt consolidation loans that fold existing mortgage and credit card debt into a two-year hybrid adjustable rate mortgage. The company markets its product through direct mail and referrals from bankruptcy attorneys. The key is to find borrowers who are able to stay current on their repayment plans and mortgages for two or three years. Borrowers who receive a First Hallmark consolidation loan and stay current with payments are offered the chance to refinance into a lower-cost conventional mortgage. Bruno Viscariello, president of First Hallmark, told the industry newsletter Inside Mortgage B&C Lending (Bethesda, MD) that about 80% of the company's customers are able to take advantage of the refinance option. About half of the company's $15.5 million in monthly originations comes from borrowers in bankruptcy. The company operates in New Jersey, New York, Pennsylvania and Florida.