Lender loan modifications could become serious again – provided the mortgage is owned by Goldman Sachs. Recently reported in the Wall Street Journal, Goldman has been put in a unique position of profiting by giving loan modifications. By both complying with the outline of the 2016 government settlement that requires that it provide $1.8 billion in consumer relief, such as loan modifications, and by making those loan modifications, it has planned to profit handsomely.
REQUIRED RELIEF FOR DELINQUENT BORROWERS
Under the government settlement, which required Goldman to pay a fine, the mortgage modifications could be re-valued (as a performing loan) and then a credit taken by Goldman against the payment of the settlement fine. For example, in 2016 Goldman modified 100 loans and sought a credit against the fine for $2 million. That’s $20,000 per loan in breaks for borrowers. The profit aspect comes from the cost difference between what Goldman acquired the mortgage for and what the modified loan is now worth.
How? First of all, Goldman had no inventory of residential mortgages since they sold their inventory to investors during the heyday of the mortgage run up. So to be able to provide benefits to borrowers, Goldman has to acquire mortgages. According to the article, Goldman Sachs has spent as of the 1st quarter of 2017 $4.5 billion purchasing delinquent mortgages from Fannie Mae, and more from other private investors as well as Freddie Mac. Once it owns the delinquent mortgage, rather than foreclose it, Goldman tries to modify the mortgage with the borrower – provided the borrower shows an ability to make timely payments on the modified mortgage to “season” the mortgage with a good payment history. And it makes money doing it.
If for example there is a mortgage with a face amount of $200,000 that is 4 years delinquent, Goldman may pay $150,000 for that mortgage. Goldman then modifies the mortgage by forgiving the delinquent mortgage unpaid interest and maybe reducing the debt to $180,000. The borrower starts paying the new payment and the loan is now valued at $180,000 principal and an interest stream of say 4%, resulting in a real value of $190,000. This is a $40,000 gain for Goldman – or 26% profit.
According to the article, after the modified mortgage is seasoned, Goldman then re-sells the modified mortgage to investors – at a profit of usually 5 to 15% on the purchase price. Or Goldman can just keep the modified mortgage and then keep the loan on its books at the increased value.
QUALIFY FOR A LOAN MODIFICATION
One of the issues of course is that loans to be modified can only be successful if the borrower pays consistently for a period of time – the period of time can vary and the longer the modified loan is seasons the higher the premium a new investor will pay for the modified mortgage.
The good news for delinquent borrowers is that if their loan is now acquired by Goldman Sachs, and if the borrower is financially able to pay a modified mortgage payment, there is a good chance of a nice modification. The borrower needs to determine who the owner of the mortgage is. Goldman is not using its name as the owner of the mortgages. Instead they use a company called MTGLQ Investors LP, as reported in the Wall Street Journal article. So borrowers should look for this name as the owner of the mortgage on their home.
WHO IS MTGLQ INVESTORS LP?
Once the mortgage is identified as owned by MTGLQ Investors LP (which is short for mortgage liquidation), the borrower should be sure to apply for a loan modification. Goldman is incentivized to make the modification. The only unknown variable is the amount the loan will be modified and what the terms of the modification will be (such as interest rate reduction, loan principal amount reduction, extension of term of loan). You may be able to get this information by making a Qualified Written Request.
Copyright 2017 Richard P. Zaretsky
Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make. This article is for information purposes and is not specific advice to any one reader.
Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1615 FORUM PLACE, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 RPZ@ZARETSKYLAW.COM - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide www.ZARETSKYLAW.com.
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