Is Your Short Sale or Loan Modification Being Turned Down?

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Has your short sale or loan modification been turned down and you have no idea why? Let's examine some of the reasons. 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. loan modifications short sales

Let's say that you make your mortgage payment to Wells Fargo. You can no longer handle your payments so you ask Wells Fargo to modify your loan- to do a loan modification for you. 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 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.

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 Wells Fargo to approve your loan modification. You even hired an attorney to help you with your foreclosure defense.

Wells Fargo turns down your loan modification request. You wonder, how could this be? After all, Wells Fargo is one of the large lenders and is participating in the government's Federal Making Homes Affordable program.

But Wells Fargo tells 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.

Just because you make your house payments to Wells Fargo 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.

If it is Freddie Mac or Fannie Mae that 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 on June 3rd 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.

Why would the investors say no to your loan modification? Well, Wells Fargo's response is that the investors need their money. Wells Fargo 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 Wells Fargo is solely responsible for the decision to modify a loan or not.

Some people say that the investors are 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 Wells Fargo 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 Wells Fargo 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?

loan modifications short sales Fear of law suits! The language in the PSA in question here, Wells Fargo and Deutsche Bank- it says that Wells Fargo can "waive, modify or vary any term" as long as Wells Fargo 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 parents or even yourselves. You may well be one of the shareholders of the very loan you can not pay.




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Is Your Short Sale Or Loan Modification Being Turned Down?-was first published on South-

Copyright © 2009 By Katerina Gasset, All Rights Reserved.*Is Your Short Sale Or Loan Modification Being Turned Down?



Re-Blogged 51 times:

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Katerina Gasset
Get It Done For Me Virtual Services - Wellington, FL
Get It Done For Me Virtual Services

Thom- When our clients get the, "we can't tell you" - we tell them to hang up and call again and get a different person. They will find someone who will tell them. We have found out on every file we have, every single one of them and we have 40 to 50 listings at all times, closing 4 to 6 per month- we have yet to get a servicer to not oblige at some point.

Of course it may be easier in a judicial state such as Florida because here when you get served a summons and complaint the owner of the note has to be the one bringing the suit. The owner of the note has to be listed.

We also know people in high places and they will tell us who we are dealing with so that we know how to negotiate based on past experiences with that certain note holder/investor.

Here, if they can not find the original note- they can not foreclose. The judges are very much in favor on the homeowner in this regard.

While the laws differ from GA to Fl- the reasons for the 'no's are the same.


Sep 19, 2009 06:13 AM #97
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg Real Estate

Katerina, very well done explanation of a very difficult subject.

Sep 21, 2009 05:57 AM #98
Tracy Santrock
Fonville Morisey/Santrock Realty Group, Inc. - Cary, NC
Raleigh - Cary Realtor/Broker In Charge

Short sales are less common in my market but I'm finding that they are ever increasing.  I work w/a mediator to help the process but it certainly is frustrating to invest the time and effort only to be turned down!  Great post

Sep 21, 2009 08:59 AM #99
Tim Mallon
Century 21 Hilltop/Tri-Counties Property Management - Simi Valley, CA

Nestor, is there a rule that the servicer has to reveal the investor? I called on my own to try and Wells Fargo told me that can't give out that information. All they can do is confirm who it is. I have to find that out myself.

Sep 22, 2009 01:37 PM #100
Arleen Lammons
NewEdge Realty - Edgewater, FL

Excellent post.  Thank you for sharing this information.  This is a topic to share at our up coming office meeting.  Truly interesting.  Thanks again.





Sep 24, 2009 02:50 PM #101
Katerina Gasset
Get It Done For Me Virtual Services - Wellington, FL
Get It Done For Me Virtual Services

Tim- Try to call again. When they say they can not give that info to you, hang up and call back and get a different person. We don't have issue if it is a fannie mae or freddie mac owned note but sometimes when it is a private investor they hedge to tell you. Keep on trying. You can also tell them that your attorney said that they must disclose this to you if you ask for it in writing within 30 days. Ask them where do you send the request. Keep pushing. Someone will tell you. Katerina

Sep 24, 2009 03:41 PM #102
Victoria Lee

ATTENTION anyone facing possible foreclosure: check out! They are an incredible grassroots organization that holds large events around the country where they help hundreds or thousands of people get loan modifications. There's no cost!

The private investor issue is a hurdle, so I really appreciate your post.

Oct 20, 2009 05:30 PM #103
Angela Niece
REMAX Results - Eden Prairie, MN

Another great post.  Thanks

Nov 05, 2009 03:11 PM #104
Deidre St. Romain

Beautiful!  Thanks for such a clear and consise explanation - I have forwarded your eloquent article along to one of my clients who I am just listing her SS because Chase would not play ball.  The worst part is they string homeowners along for months saying "everything is fine - don't call us we'll call you if we need anything"...then BAM!  Notice of Default on door, in mail.  Homeowner is left scratching their head!  My client called when she got the notice and when Realtors started knocking on her door and they told her she "failed" a loan modification 4 times.  This was of course news to her because no one at Chase told her that before. 

Thank you again!

Dec 11, 2009 06:04 AM #105
Jeffrey Burnham
Choice One Properties & Mgt - Las Vegas, NV
The Wizard

Excellent explanation- this sheds alot of light on the process. I wonder why there aremnt more lawsuits against the servicers for truly NOT seeing to the needs of the investors. When they sell a home for $50k LESS as an REO than they had a short sale offer for... this is NOT looking out for the investor.

Jan 14, 2010 04:30 AM #106
Stephanie Reynolds
Integrity First Financial Group, Inc. - Santee, CA
East County San Diego Homes 619-838-4408

This article is so well written and easy for the consumer to understand. Thank you for sharing your great writing skills and knowledge on this subject! I have shared this with a current client that is trying (with no success) for a loan mod, and now we are discussing short sale. I would love for them to be able to remain in this home, as they have lived there for 30 years. Mom got talked into a loan she should have never been in and unfortunately they are now feeling the repercussions. So much more information in the comments as well. Thanks again!


Mar 16, 2010 04:26 AM #107
Tom Davis
Harrington ERA,DE Homes For Sale, $$ Save $$ Buy Today ! - Dover, DE
FREE Delaware Homes Search!, $$ Save $$ - Find Homes! Delaware Realtor

Nestor & Katerina,  Thank-You!


The scary truth for homeowners and you just laid it out in black in white!

When I attended my CDPE Class they were saying about 1% of loans we getting modified.

It's the reality of what is going on today!  You also featured in some Great information on the "PSA" ...thanks for the post!

Tom Davis

Mar 16, 2010 04:42 AM #108
Stephen Arnold
HomeSmart Elite Group - Scottsdale, AZ

Hi guys!! What a wonderful post!! Your blog posts are always spot on!!  Thanks for all that you do in the AR community!

Mar 16, 2010 05:33 AM #109
Katerina Gasset
Get It Done For Me Virtual Services - Wellington, FL
Get It Done For Me Virtual Services

Thank you for making comments months later:) That is awesome that this post is still being read!  This post has been reblogged by 52 agents! That is just fantastic to spread this information for the consumers and homeowners as far as we can reach! Thank you again! Katerina 

Mar 16, 2010 06:50 AM #110
Kathy Opatka
Serving Ocean City, MD, & The Delaware Beaches


Just thought I'd stop by and say "Thank You" for all the information you shared on SMMCAMP!  Much appreciated!

Kathy Opatka

Mar 25, 2010 07:29 AM #111
Alicia Mendoza
Realty ONE Group Inc. - Irvine, CA


This is a fantastic blog post that is not only informative, but easy to read and understand for both industry professionals and consumers.  Some of my potential clients are often on the fence about doing a short sale or loan mod.  They often ask me what I think about loan mods.  Now I can direct them to this blog post and make sure that they understand why we hear so many horror stories about loan mods.

I did hear a loan mod success story from a friend of mine who was able to achieve one with AHMSI.  Not sure who the investor was, but it took him almost a year to get some answers.  Part of the issue was that the file got shuffled around between negotiators, and a couple of the negotiators didn't return phone calls, emails, etc.  Anyhow, it's always great to have the info you provided at our fingertips, as well as have some success stories to keep our clients/customers thinking as positively as possible!

Thank you!

- Alicia Mendoza, Realtor/CPA - EPI, Inc. - Orange County, CA

Jul 07, 2010 01:45 PM #112
Sharon Alters
Coldwell Banker Vanguard Realty - 904-673-2308 - Fleming Island, FL
Realtor - Homes for Sale Fleming Island FL

Katerina, how did I miss this post? I have read all these thing in different places, but the summary and explanation here are superb. Definitely reblogging this one.

Aug 12, 2010 05:30 PM #113
Katerina Gasset
Get It Done For Me Virtual Services - Wellington, FL
Get It Done For Me Virtual Services

Alicia and Sharon- Thanks! I appreciate your comments. This post is still relative now too. We just had one where after 9 months the lender told him he was not approved for loan mod but at the same time after he made the mod payments they said, oh by the way, you are in default now! 

Aug 12, 2010 06:11 PM #114
Dave Halpern
Keller Williams Realty Louisville East (502) 664-7827 - Louisville, KY
Louisville Short Sale Expert


What a clear and readable explanation of this baffling topic. This will help me explain the problem to my clients. Thanks!

Sep 16, 2010 02:22 AM #115
Sara Chris
Absolute Consultant Group - Toluca Lake, CA

Thanks Katernia for the great information about short sale misconception. We already take no serious afterall and then paid a high level risk on that. 

Thanks for great post.

Sep 02, 2014 05:32 PM #116
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