Foreclosures Complicated By Complexity Of Lenders

Posted in Foreclosure, Foreclosure Homes, Foreclosure Listings, August 7th, 2007 |

Till yesterday lenders were amenable to suggestions about modifying loan terms it being mutually beneficial to both parties to plug the situation and avoid further drainage. At that time the strings of the purse had been in the hands of local banks that knew the borrowers and the value of the property.

But many availed of the loan through a broker who happened to be just a link in the chain involving insurance companies, mutual funds and pension funds. Another group did the loan processing and yet another were trustees of the investors and represented their cause. The result is that when a borrower wanted to contact the proper persons to negotiate foreclosures invariably it was a running merry-go-round. These symptoms are all indicative of a fraud, opine lawyers.

The chain is kicked off with rise in interest rates leading to rising defaulters and foreclosures causing the real estate market to cool off. Most of the delinquents are from the sub-prime borrowers. The alarming result has been that there has been major sell offs in Wall Street stocks and bonds with investors being frightened with the trend in the economy.

The accusing finger points to the Wall Street innovation of securitization which has never given a thought to the borrower. Defaulters try to surface from the drowning by selling off the property only to find that strict rules prevent them from taking this escape route. The outcome is that more and more house owners are pushed into foreclosures leading to further fall in property value.

It is difficult to find a way out of this complex maze. Many lenders are at their wits end trying to locate and pinpoint the lender. Others face unresponsive service providers because modifying loans would make a hole in their pockets. Even if a fraud is detected the various interested parties protect each other by withholding documents. The law, which states that with the passing of the loan to another party the first party is no longer liable for problems, further compounds the complexity.

In the entire country about 60% of home mortgages in 2006 went into securitization trusts – most of them were from the sub-prime section. Fifteen years ago the same situation had risen but operations backed by the government-modified loans had eased the situation. But with private issued loans from Wall Street there is no such respite today.

Via