Arthur and Alberta Bailey are about to lose their home near New Orleans, and their mortgage company says one thing stands in the way of relief: The investors who own their mortgage won’t allow any modifications.
It’s a story heard again and again across the country as desperate homeowners try to participate in a federal program created to foster loan modifications and prevent foreclosures. Loan servicers say their hands are tied by Wall Street.
Federal officials, bank officers, housing counselors and investors themselves say that excuse is cited far more often than is justified. In fact, they say, few mortgage deals include such restrictions.
Consider the case of the Baileys. Litton, a subsidiary of Goldman Sachs, services their loan, and Litton’s contract with investors has no clear language banning modifications. In fact, documents show that over 115 other mortgages [1] from the same investment pool have already been modified.
Even the representative of investors in the Baileys’ mortgage says only the servicer can decide when to modify loans. While he couldn’t comment on an individual case, Bank of New York Mellon spokesman Kevin Heine says it’s “misinformation” to say that investors make these decisions.
Servicers can pass the buck because one mortgage often involves many different companies. During the housing bubble, banks often sold mortgages to investors on Wall Street so they wouldn’t have to keep the loans on their own books, freeing them to make even more loans and protecting them from those that went bad. They then hired servicers to handle the day-to-day work of collecting payments from homeowners ¬– and to decide when to modify loans. Now loan servicers have been inundated with requests from homeowners trying to avoid foreclosure through the government’s $75 billion mortgage modification program. The Treasury Department estimates that 1.7 million homeowners should qualify for help.
Source: Propublica
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