Equity Skimming on Rentals

Kristal Kraft wrote a blog on Equity Skimming that sparked some ideas.

Equity skimming is when a landlord has no intention on paying the mortgage. Many times these landlords are overleveraged and may have multiple properties they own but can’t make payment. These criminals, decide to not pay the mortgage company but still collect rent from the tenants. This usually happens for about 6 months until there is an eviction notice on the door and the tenants usually have 3 days to find a new home. We have been seeing more of these due to the liberal mortgage practices that were giving loans to virtually anyone.

A business idea came to mind to try to protect these tenants who are renting a home. What if….

there was a data base of landlords that don’t meet certain criteria. (i.e credit score below x, own x homes, missed 3 payments, etc)

The system could use algorithms and statistical analysis to determine the probability of default. Surprisingly the mortgage companies have these sophisticated tools that are very accurate before they give out a loan but greed and low interest ARMs allowed them to look the other way.

Short term, we may see more equity skimming but as the mortgage companies tighten up and foreclosures drop, we will see less.  With that said however, I still think there is a need to continue to find ways to protect the tenants that are living in these homes…..