When a homeowner wants to renegotiate their mortgage who do they contact?

As I understand it, most residential mortgages are resold into the secondary mortgage market to recapitalize local and regional lenders. The original lender is recapitalized by the sale of the mortgage into the secondary market so they have more money to lend. Additionally, the original lender has the opportunity to make money by charging fees to service the loan for the new owners.

In the secondary mortgage market the original loans are purchased and sold. Subsequently specialized investment firms will group together many loans and sell grouped loans as securities or bonds. They market these products as collaterized mortgage obligations (CMO's) and collateralized debt obligations (CDO's) which are backed by the value of mortgage loan. The CDOs are sometimes grouped again into another CDO product.

Theoretically, the risk of the individual loans is reduced by the aggregation process developed by the investment firm(s). The underlying assumption was that property values would not experience significant declines in values and that the duration of any decline would be short.

Today's reality of declining property values and the high volume of mortgage foreclosures clearly demonstrates the errors in the underlying assumptions.

Currently, one assumption many people are making is that it is in the original mortgage lender's interest to renegotiate the loans on properties that have a loan going into default. The problem with this assumption is that the original lender probably resold the loan in the secondary market and the loan has been packaged and maybe even repackaged into CMO and CDO investment instruments. The original lender collects fees on servicing the loan when the homeowner is making payments and the trustee, a separate entity from the original lender, collects fees when the homeowner goes into foreclosure.

Unfortunately, when a homeowner wants to renegotiate their loan there is not just one lender who owns that mortgage who has the ability to renegotiate the loan since these loans were packaged and repackaged into CMO's and CDO's that have many owners who have an investment interest in the original loan that they obtained when they purchased these investment instruments.

The original mortgage lender would prefer that the homeowner continue to make their mortgage payments. However, the original lender is no longer holds the note on the mortgage since the note was sold in the secondary mortgage market. So, when the homeowner is unable to continue to make their monthly payments who do they negotiate with?  Who can approve lowering the interest rate? Who can approve reducing the amount of the principal? Who can approve devaluing the loan that is the security for the CMO's and CDO's.

This blog was submitted by an Oregon licensed realtor working the Bandon, Port Orford, & Gold Beach area