Lawsuit Reveals How a Middleman is Blocking Mortgage Modifications for Homeowners

Pamela Jeter of Atlanta, Ga., has been trying to get a mortgage modification for more than two years. She seems like an ideal candidate. She has shown she can stay current with a reduction in her monthly mortgage payments. Everybody would seem to win. Even the investors who ultimately own her loan think she should be able to get one. So, why is Jeter facing foreclosure?


A bank that she didn’t even know is involved with her loan has thrown up a roadblock to modifications. At least tens of thousands of other homeowners have shared a similar plight. Jeter’s case is a window into a broken system where even though the actual investors, when asked, say they want to allow modifications, the bank that acts as their representative has refused to allow them.

Two big banks act as middlemen between the homeowners like Jeter who make payments and the mortgage-backed securities investors who ultimately receive them. The banks’ jobs were supposed to be relatively hands-off, devoted more than anything to processing homeowner payments. When the housing bubble burst, they faced new demands.

One of those middleman roles is well-known to homeowners: the mortgage servicer [1], responsible for collecting homeowner payments and evaluating requests for a modification.

But it’s another middleman that’s proven the real barrier for Jeter: the trustee, who is supposed to be the investors’ representative, making sure the servicer is maximizing investors’ returns and distributing checks to them. HSBC is the trustee for the pool of loans of which Jeter’s is a part — and it’s refused to approve any modifications for loans like hers, saying the contracts around the mortgages simply don’t allow it.

The good news for Jeter is that, in what seems an unprecedented step, her servicer OneWest has taken HSBC to court in order to allow modifications. It filed suit in June of last year [2].

But in a sign of just how convoluted the mortgage world has become, OneWest is also pushing to foreclose on her. A recent sale date was avoided only after her lawyer threatened to sue.

Read on.