Has your loan modification or Wellington Short Sale been turned down? Did the reason why make your eyes glaze over? Did you perhaps NOT even get a reason? Did the reason even make sense?
We know homeowers who are put on trial modifications only to get turned down on the permanent loan modification. If you are making your trial payments on time each month why would your permanent modification be turned down?
There are some reasons although they most likely won’t make you feel any better. Some of do like to know the reasons things don’t work out the way we had hoped they would. These reasons may not make you feel any better or maybe they are just excuses by your lender, however there are a few things you may not even know about your loan.
Let’s say that you make your mortgage payment to Bank of America. You can no longer handle your payments so you ask Bank Of America to modify your loan and you apply for your loan modification. You are behind in your payments. You are in fact, in foreclosure but you are still living in your home and the judge in your case has not ordered the sale of your home at auction yet. You are nervous and scared. You see your neighbors losing their homes all around you. You are hopeful because you see on the news and in the newspapers that the Federal Making Homes Affordable Program has been helping some folks keep their home and get a loan modification. Every few months you hear about another government program that supposedley will help you stay and keep your home. But each time it is like a lead balloon. Your hopes go up there only to be shot down.
You are no longer making your mortgage payment because your adjustable rate has been applied and your mortgage payment has gone from $1600 a month to $2300 per month. You just can not make these payments. You have been trying for almost 2 years now to get Bank of America to approve your loan modification. You even hired an attorney to help you with your foreclosure defense.
Bank of America turns down your loan modification request. You wonder, how did that happen? Bank of America is one of the large lenders and is participating in the government’s Federal Making Homes Affordable program, the HAFA program and other government programs.
Then you get the news from Bank of America who tell you that the investor is the one that will not allow you to get a loan modification. What in the world is an investor doing making decisions on your loan you wonder? Well, you are not alone in your confusion. Every day we are explaining the whole mortgage note owner thing to buyers agents, real estate agents and homeowners. Every week we run across people in the real estate business who don’t know how the process works or what the ownership piece to all of this is and how it is handled.
When you make your house payments to Bank Of America this does not mean they own that note that you are paying on. They are the servicer. Other words you will hear them called are asset management companies.
The very first thing you need to do before you ask for a loan modification is to find out who actually owns your note. You can do this by calling who you make your mortgage payments to and asking them.
Many of the servicers don’t want to give you that information so you may have to make this request in writing and send it by certified US mail.
If Freddie Mac or Fannie Mae own your note- you have a much better chance at getting your loan modification approved if you qualify. If it is a private group of investors, your chances go way down. Why would this happen?
One in eight homeowners’ loans were sold to investors on Wall Street. What happens is that a bunch of loans are packaged together. These are called mortgage-backed securities. They are then sold off to investors. Homeowners who have mortgage-backed securitized loan are five times more likely to be late on their house payments. Many of these borrowers were given loans they were not qualified for from the beginning. Many of the homeowners getting these loans did not read the fine print and did not realize how high their mortgage payments might go when adjusted.
The rules to allow modifications, short sales and terms of foreclosures and deficiencies are ambiguous at best. Homeowners who are told no by the investor have little recourse.
The federal Making Homes Affordable program lenders who participate in the program must modify all homeowners that qualify. The exception is when the investor has a rule that they do not allow modifications.
The Federal Housing Finance Agency reported to Congress that these securitized mortgages are a “hurdle” to the success of the Making Homes Affordable program. The treasury department has not disclosed why the modifications are denied so there are little to no facts to go on. So don’t depend on the government to help you get your modification.
Does it make any sense for the investors to say no to your loan modification? Well, Bank of America’s response is that the investors need their money. Chase for instance has one situation where the borrowers ( the homeowners) are trying to get their loan modified but Goldman Sachs is the issuer and Deutsche Bank is the trustee. But when you go and talk to these investors and we have on several occasions when doing short sale negotiations for our sellers; the investor passes the buck back to the servicer. For instance, Deutsche Bank says that Chase Bank is solely responsible for the decision to modify a loan or not.
Investors feel that they are treated as the scapegoats. Everything can easily be blamed on them. Since you rarely get to speak to anyone at the investors’ group it is hard to tell who is telling the truth. In this particular situation Chase bank is saying that the investor is not forgiving the past due debt and that makes the payment go up on a loan modification because then Chase Bank would have to put that past due balance along with all the penalties and fees into the loan modification which then may cause the homeowner to not qualify financially for the loan modification.
Servicers have agreements, contracts that they sign with investors. These agreements contain the rules for modifications. These agreements are called Pooling and Servicing Agreements which is known as PSA’s. The PSA is most often what the servicer says is the reason for them not being able to do the loan modification or release the deficiency on a short sale.
But when you talk to other people in the management areas or to the investors they claim that there is nothing in the PSA’s that would prevent the servicer from approving loan modifications, short sales and releases. There is a new study coming out from a law school wherein they state that only 8% of these mortgage-backed securities agreements contain any language that says the servicer is not allowed to do a loan modification for these notes. That means that about 92% of all the NO’s; could actually be YES’s. So why would that even happen?
Law suits! They FEAR the law suits coming. The language in the PSA is in question here, Chase Bank or Bank of America or any other servicer and Deutsche Bank- it says that SERVICER can “waive, modify or vary any term” as long as the servicer makes a “reasonable and prudent determination” that the modification is in the investor’s best interest. Attorneys examining these agreements say there is quite a bit of room for servicers to make these decisions. But the language itself in this agreement is enough for the servicers legal counsel to be concerned with the investor suing them for not acting in the best interest of the investor. They can not, no matter how inhumane this sounds, put the homeowner ahead of the investor. This is about business and if they want business from investors they need to make sure they are looking out for the interests of the investors.
The treasury department has stated that the fear of law suits is the biggest deterrent to getting the servicers to approve loan modifications and short sales. So doing little or simply turning down the loan modifications are the answer many servicers choose. This is not personal and this is not against you, the homeowner. The position of the servicers is to watch their own backs and to protect the assets to which they have been entrusted with, your mortgage-backed security. The Treasury Department says they can relieve some of the pressure of the fear of lawsuits by standardizing requirements for loan modifications and also provide some type of calculation to figure out if the investor will make more money by the loan modification or by the foreclosure.
We need to keep in mind one big thing in all of this and that is that these investors end up being regular people because most of these mortgage-backed securities were bought by pension funds and retirement plans of folks like your grandparents, your parents, your aunts and uncles or even yourselves. You may well be one of the shareholders of the very loan you can not pay.