Securitized Mortgages are at the Root of Foreclosure Crisis

Share this:

Tweet

Julie Parker

Julie Parker was born in March 19, 1983, in Lancaster – Los Angeles County, California. Her father is an experienced economist and businessman, who motivate her taste for the real estate market. Recently, graduated in Economics and now focus her studies in a PhD. Now she’s a consultant and webwritter of ForeclosureListings.com

The securitized mortgage loans are at the root of the foreclosure crisis. It is this that continues to prevent a hurdle to any kind of solution.

Cynthia Goldrick took a mortgage on her house, 90 miles from New York City, for $375,000 in 2005. Within two years the interest shot up from 6.5% to 9.5% causing the monthly commitment to increase from $2,370 to $3,850. It was inevitable that foreclosure would follow given the current economic scenario of unemployment, wobbly health care and personal problems.

Rose Mortgage of New Jersey had granted the loan and Saxon Mortgage Services serviced it – the latter being a part of Morgan Stanley set up. Currently the loan is in the hands of neither as it has been pooled with other mortgages the total of which amounts to $700 million. This has been possible because of the creation of an investment vehicle by Morgan Stanley that was termed IXIS 2005-HE4. It was then sold to investors across the world. These pools are the cesspools of the toxic assets. Among the investors are Prudential Insurance, Pimco Advisors, and Western Asset Management etc – financial bodies that manage the money of the rich and famous apart from the general populace.

Goldrick, worried with a daughter with brain tumour and a mother with cancer said that she took the loan not to go on a fancy holiday or buy a swank car but the treatment of her loved ones. In urgent need for funds the Goldricks tried to take the help of AmeriMod – a firm that specializes in modification of loans by lowering the monthly payments while avoiding foreclosure. Sale Pane representing the company said, “Modifications can save this economy. My company could do 60,000 loan modifications a month with our current staffing. Give us government assistance and I can modify the entire country in a year.”

But modifications are not helping because more and more people are re-defaulting. The regulators are warning that the trend is worsening. Of all the loans that have been modified in 2008, 55% have become delinquent.

The biggest problem arises from the bondholders – the financial firms that invest in mortgage-backed securities. They are reluctant to undergo losses and agree to modification although advocates are trying to reason with them that it is more costly to pursue the path of foreclosure. Some of the securitizations categorically prohibit modification in its agreements.