Investors and Middlemen Deny They Are Stalling Foreclosure Relief Measures
The mortgage investors and middlemen are denying that they are hindering the foreclosure relief measures. The lawmakers are skeptical about their sincerity.
Tom Deutsch of American Securitization Forum speaking to the House Financial Services Committee said, “Because foreclosure is usually the most costly means of resolving a loan default, it is typically the least-preferred alternative for addressing a defaulted loan.”
The service companies handling billing, taxes and other incidental tasks of mortgaged properties are empowered to modify the loans. It is mandatory of them for them to do so if the change will cause less loss than if the mortgage firm continued with the mortgage.
A reduction in interest or the principal of the mortgages that have been parceled into securities would greatly help the foreclosure victims by cutting down on their monthly payments. The investors too would have to incur greater losses by continuing with the foreclosure process. Spencer Bachus of Alabama (Republican) said, “Fear of being sued by unhappy investors has served as powerful disincentive for mortgage services considering whether to modify a troubled borrower’s mortgage.”
Another factor that deterred service companies from taking the initiative in loan modification is that they earned fees by mailing statements and collecting monthly dues from the house owners. But if they proceeded with loan modifications they would not tuck anything into their pockets.
The picture was quite different about three decades ago. The banks owned the mortgage without any ambiguity. But today the mortgage or may be a slice of it could be owned as a mortgage-backed-security by any type of investor.
According to the Federal Reserve $2.8 trillion of the $14.8 trillion of pending mortgage debts are held as mortgage-backed-security that had been made possible by the creation of loan pools. Fannie Mae and Freddie Mac now hold $4.2 trillion as mortgage debt.
Rep. Barney Frank (Democrat) critically remarks that people are not getting help – that is what he is seeing all around. It is difficult to believe otherwise. He said, “Who am I going to believe, you or my eyes?”
Deutsch clarified that the mortgage servicers have to do a lot of tight rope walking. They can be legally sued for “over modification” and also for not doing as much as is required to help the foreclosure victims.
The legal counsel of Managed Funds Association that looks after hedge funds said that modifications are preferred to foreclosures.
