This post focuses on the homeowners who clearly qualify for a loan modification and have, in good faith, provided all of the required documentation and information necessary to modify their mortgage. Yet, their loan modification is denied by the servicer claiming that the investor who owns the mortgage won't allow any modification of the loan.
I've heard it from troubled homeowners over and over again; their loan servicer said their hands are tied by the investors. For homeowners, it can be very difficult to understand who is responsible for what and it's this confusion that gives servicers a ready excuse for refusing modifications. This is just another of the many reasons why homeowners should have an experienced
foreclosure defense attorney
on their side.
I can't begin to tell you the amount of research I have done and find that not only Federal officials, bank officers, and housing counselors say very few mortgage deals included such restrictions, but the investors say it themselves. In one of the articles a Bank of New York Mellon (one of the largest trustees that administer mortgage securities) spokesman stated that while he couldn't comment on an individual case, it's "misinformation" to say that investors make these decisions. The responsibility to modify loans "falls squarely to the servicer."
Even the investors are saying that servicers are not acting in their best interests. "This is one of those rare alliances where investors and borrowers are on the same page," according to Laurie Goodman, senior managing director at Amherst Securities, a brokerage firm that specializes in mortgage securities. She says investors take no part in determining individual loan modifications and, instead of foreclosures, prefer sustainable modifications that lower homeowners' total debt.
Even when contracts with investors do have restrictions, servicers don't appear to be following federal requirements that they ask investors for waivers to allow modifications. Such requests "never happen," says David Co, a director at Deutsche Bank's department that oversees 1,600 residential securities.
John Hunt, a law professor at the University of California, looked at contracts that covered three-quarters of the subprime loans securitized in 2006 and found that only 8 percent prohibited modifications outright. Almost two-thirds of the contracts explicitly gave servicers the authority to make modifications, particularly for homeowners who had defaulted or would likely default soon. The rest of the contracts did not even address modifications. That alone should indicate that the contracts that servicers often blame are usually not a roadblock.
Indeed, nobody knows the exact extent to which servicers are passing blame on to investors. Some housing counselors estimate that 10 percent of the denials they see are attributed to investors; others say they see as many as 40 percent. Either way, tens of thousands of homeowners may be affected, their attempts to modify their mortgage wrongly denied.
When homeowners are told that their modification was denied by the investor many will ask for the investors name and contact information. In almost every case they are told that this information cannot be provided to them. It's at this point that the homeowner feels defeated with nowhere to turn, but is that true? Of course not; As a matter of fact in 1995, as part of efforts to increase consumer protections in the mortgage industry, Congress passed a law amending the Truth in Lending Act to require servicers to provide the name and contact information for the owner of a loan when a homeowner submits a written request. The Federal Reserve, which has authority over the Truth in Lending Act, has confirmed the law's requirement in that the information must be provided. However, although this is law, I've seen many cases where the lender/servicer still refuses to provide the information to the homeowner.
What many homeowners don't know is that mortgage companies, some of which are affiliated with the nation's largest banks, are paid to manage pools of loans owned by investors. The companies typically collect a percentage of the value of the loans they service. They extract their share regardless of whether borrowers are current on their payments.
The opportunities for additional revenue in delinquency are considerable, confronting these mortgage companies with a conflict between their own financial interest in collecting fees and their responsibility to recoup money for investors who own most mortgages. The Federal Reserve Bank of Boston concluded in a paper they published that "The rules by which servicers are reimbursed for expenses may provide a perverse incentive to foreclose rather than modify."
This is one of many issues with which homeowners are faced while trying to modify their loans to stay in their homes. Whether you are in foreclosure or not, you should consult with an experienced
foreclosure defense and real estate attorney
and save your home.
If you are one of the many homeowners struggling to get a modification and have been told that the investor who owns the mortgage won't allow any modification of the loan,
contact my office today
and schedule a FREE initial consultation.