Orange County’s seeing another mortgage-related line of business pick up steam, thanks to the foreclosure crisis.
Loan modification, foreclosure relief and related financial workout companies are by most accounts some of the fastest growing businesses in the county of late.
Dozens of locally based loan modification companies,large and small,now count OC as their home, according to state records. Many use gimmicky Web site names such as “WeSaveHomes.com” or “FedMod.com,” as well as TV and radio advertising to grab business.
These companies, whose services target under-fire homeowners facing foreclosure, have been bringing business to the area’s office landlords during the past few months.
A rough estimate puts close to a quarter-million square feet of office space that has been leased by a bevy of small and midsize loan modification and related businesses since late 2008.
Many of those businesses didn’t exist until last year.
It’s a bright spot for OC’s battered office market, which saw negative absorption of about 400,000 square feet in the first quarter, on top of negative 1.6 million square feet for all of 2008.
The loan modification industry’s seen “skyrocketing growth” in the past year, said Tom Abel, first vice president for the Anaheim office of CB Richard Ellis Group Inc.
Abel’s worked on several deals for loan modification companies recently, helping fill in Central County office space left behind by struggling mortgage, finance and other tenants.
Will it Last?
“The question is, ‘How long does it last?'” Abel said.
Neither landlords nor loan modification tenants are thinking long term, based on the typical terms of the leases.
Lease terms for loan modification tenants typically run from two to three years, and tenant improvement work for the office space is usually minimal, said Kurt Strasmann, managing director of OC brokerage operations for Santa Ana-based Grubb & Ellis Co.
Most loan modification companies are no-frills. They prefer taking space where furniture has been left behind by prior tenants,often defunct subprime lenders. That allows them to ramp up quickly, according to brokers.
Strategies vary from company to company in how to work with lenders to restructure customers’ home loans and other debts.
Some loan modification companies are staffed largely by employees whose loan expertise comes from positions in the subprime mortgage industry.
Others are set up as law firms and count more attorneys and paralegals among their staff members than mortgage industry workers.
That helps for more than just image. Law firms in the state are able to collect advance fees for loan modification work, while other companies are reportedly required to get pre-approval from the state Department of Real Estate to collect advance fees.
Sizable leases have been announced across the county in recent months.
Freedom Financial Management Inc. of Santa Ana recently signed a lease for about 21,000 square feet of space on East Alton Avenue, moving a few blocks away from its old location. The new lease is about four times the size of its old one.
Abel recently worked on a new OC office for The Firm Group, which counts its headquarters in Rancho Cucamonga. The company wanted to tap into the large number of mortgage workers in the area, he said.
Originally, Firm Group wanted 6,000 to 10,000 square feet, but it opted to go bigger to accommodate its expanding business.
“Their eyes got big,” Abel said.
Ultimately, the tenant signed a 35,000-square-foot lease at 1900 S. State College Blvd. in Anaheim. The company’s in the midst of adding about 200 employees for the OC office.
Other similar leases Abel’s worked on include a roughly 8,000-square-foot deal for Fullerton-based Nationwide Foreclosure Relief, as well as another deal for about 8,000 square feet for American Freedom Financial. Both opened offices in Anaheim.
Fancier offices are also getting their own tenants. Near John Wayne Airport in Newport Beach, Help Modify Now Debt Solutions Inc. has leased 17,250 square feet of office space at Irvine Company’s MacArthur Court.
New tenants mean new jobs.
In Irvine, United Law Group Inc. is hiring at a rapid pace. It’s bringing on close to 200 attorneys, paralegals, processors and customer service employees, less than a year after starting the business.
The company recently signed a 33,000-square-foot lease near John Wayne Airport, in a space that formerly was used by homebuilder K. Hovnanian Homes.
In addition to providing its own debt reduction and foreclosure prevention services, the company, which is a law firm, says it will be going after less scrupulous loan modification competitors who fleece homeowners.
Lots of Business
There appears to be plenty of business available from that line of work. Much like the maligned subprime mortgage industry, which was largely based in OC, the loan modification world counts a skewered public image.
The government’s starting to crack down on modification companies pushing fraudulent payment schemes, unreasonable expectations and excessive fees. At least two local loan modification companies have been targeted by state and federal authorities for charging customers upfront fees of as much as $3,000 but not performing the promised work.
Recent studies suggest that the benefits some companies in the industry offer are minimal, at best.
Less than half of loan modifications made in late 2008 resulted in homeowners’ payments falling by more than 10%, according to a government report released this month.
Nearly one in four loan modifications made in the fourth quarter actually resulted in increased monthly payments, thanks to interest or fees tacked on by banks and others, the Office of the Comptroller of the Currency and the Office of Thrift Supervision reported.
