…May bring loan modifications to a screeching halt.
By Paul Keegan FATCATEXECUTIVE.COM
Please note that for some unexplained reason Matthew Lexus has not been allowed to forward any completed articles to us. I was provided instructions to put this summary together based on notes that were forwarded to me by my intermediary. (There are multiple layers of contact between myself and Matthew Lexus due to safety protocols of the Witness Protection Program)
In the previous article Matthew discussed the lawsuit between Countrywide Financial (Owned by Bank of America) and Greenwich Financial Services. The Lawsuit if successful may have far reaching implications for consumers seeking loan modifications as it possibly could bring loan modifications to a complete standstill if a consumer’s loan is owned by a private investor according to Matthew Lexus.
In previous articles Matthew discussed this at length. When you finance a home loan, the loan is normally packaged as a mortgage backed security and it ends up in the hands of private investors. Those investors can be mutual fund companies, insurance companies, and pension companies or private individuals. In addition the loan may be guaranteed by Freddie Mac, Fannie Mae, or Ginny Mae. If that is the case bank loan servicers will be free from potential lawsuits to modify loans under the guise of Freddie Mac, Fannie Mae, or Ginny Mae as these entities are owned and or controlled by the government.
Why are loans packages as securities?
The concept of selling mortgages as mortgage backed securities was twofold. It allows banks liquidity to turn around and make new mortgage loans + it allows other entities such as mutual fund companies, insurance companies, pension companies, or private individuals the ability to seek returns in what they believed to be safe and secure investments for the most part.
Here is the predicament for homeowners wishing to qualify for a loan modification:
If Greenwich Financial Services is successful in obtaining Bank of America (The loan servicer of mortgages owned by Greenwich) to “buy back” loans that have been modified, a precedent will be set.
Bank loan servicers may be extremely reluctant to “modify” loans that are not guaranteed and or owned by Freddie Mac, Fannie Mae, or Ginny Mae since essentially the bank loan servicers could be forced (by means of litigation) to buy back the loans which may crimp their liquidity and ability to make additional mortgage loans in the short term.
In addition those reacquired loans are in distress meaning specifically they are held by homeowners who are possibly delinquent and or the verge of delinquency. So it may not be possible for those distressed loans to become repackaged and or sold to other government guaranteed entities resulting in significantly larger and unanticipated losses to the banks.
Because the banks do not wish to be forced to buy back loans, or incur unanticipated losses they may logically place more emphasis on modifying loans that are owned or guaranteed by Freddie Mac, Fannie Mae, or Ginny Mae since it’s not likely the government would litigate against the bank loan servicer because the Government is more concerned they aren’t making enough money in profits!
In a sense the bank loan servicers may very well “cherry pick” (for good corporate reason) loans for modifications based on who is the owner of the loan.
If your loan is owned by an investment group, it’s possible that your request for loan modification will be delayed for the foreseeable future. This has in fact potentially occurred to some who have written to me personally whose loan is owned by private investors.
This begs the question:
What assistance is available for those whom have been delayed or rejected for loan modifications?
I will explore this a bit further in another article forthcoming.
