I just got off the phone with a client who is being threatened with foreclosure. She's doing everything wrong so I felt this was a good time to discuss this tragic occurrence so many or our family, friends and neighbors are experiencing.
For starters, I'd like to shed some light on why banks are taking so long to address this problem. A while ago, I was told by one of the mega-bank representatives that 18 months ago, they were working on 4,000 modifications and short sales. Today they're working on close to 400,000. Of this number, less than a quarter of these homeowners have had their mortgages modified or completed negotiations for a short sale. As a loan originator, I can see the effects of this drain on the mega-bank's resources in the time it takes for them to close their loans. They're pulling from their processing staffs to manage the huge volume of modification and short sale requests and production is suffering as a result.
Does it make sense for a bank to agree to a modification or short sale? You bet! Think about what happens when a disgruntled homeowner leaves? We've all heard stories of some of the things they might do in retaliation to the evil bank who is throwing them out of their homes. Then there are the costs a lender has to carry; taxes, insurance, keeping the heat on so the pipes don't burst in the winter, vandalism, neighborhood blight, potential lawsuits, the list goes on. Banks don't want to be involved in the maintenance of abandoned houses. It only makes sense for them to work with homeowners who will maintain the house and pay the bills. This is why, if a homeowner leaves, the lender will no longer negotiate with them.
Why does it take so long and why are the banks so hard to deal with? Why do homeowners have to go through so much agony? These are very complex questions and while in some cases, it's because of incompetence, it really isn't all that simple. Most mortgages are not held by the lenders a borrower closes the loan with. They're sold to Fannie Mae, Freddie Mac and Ginnie Mae and "pooled" with thousands of other loans and converted into securities. These securities are purchased by small mom and pop investors and large institutions like insurance companies and pension funds. Many people are relying on these securities for income and retirement. Part of the process of converting a mortgage into a security is an instrument called a Pooling and Servicing Agreement. This document spells out what the Servicer does in certain circumstances. (The Servicer in many cases will be the bank a borrower makes application with but in many cases the loans are sold immediately after funding to other Servicers.) When a borrower calls their Servicer and requests a modification or short sale, the Servicer pulls out their Pooling and Servicing Agreement to see what they're allowed to do. Herein lies the catch; very few Pooling and Servicing Agreements provide for modifications and short sales so the Servicer now has to go to the Trustee to get a decision. The Trustee is the fiduciary entity who is charged with maintaining a quality investment for the investors, not dealing with borrowers in distress.
I could go on for hours about the secondary mortgage market but I think I'll lose everybody. The intention here is to demonstrate there's more to it than the cantankerous buffoons homeowners have to communicate with when requesting help from their mortgage companies.
So, what's a homeowner to do?
1st - DO NOT PAY any business, organization, or person who promises to prevent foreclosure, or modify your loan. There are no-cost, approved housing councilors all over the country who can help, that's what they're there for.
2nd - E-Mail me for more information. I don't make any money doing this but I can't stand to see people lose their homes. I have a file I can send that you're welcome to share with anyone who is in trouble.
Bill Gow
PrimeLending
2050 S Woodlands Village Blvd., Ste 2
Flagstaff, AZ 86001
Phone - 928-779-9500 (ext. 21)
Fax - 866-908-4013
bgow@primelending.com
NMLS# 347241
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