For over two years, banks have been given special monies from Congress, and extremely low interest rates from the Federal Reserve, to work with home owners to modify their home loans once the housing bubble collapsed. However, very few people have actually had their loans adjusted, and instead, banks have been pursuing foreclosures at gargantuan rates.
Late last week, that policy may be changing, and yet, it is the homeowner who needs to be wary of this. On the surface, having the ability to re-structure an underwater mortgage certainly looks like a winning situation, but we also know that the banks and the RMBS (Residential Mortgage Backed Securities) markets are on the precipice of collapse due to the fact that the states and the courts are showing many of these entities do not have the proper documentation and ownership to actually foreclose on property.
The issue at hand is ownership of title, and rightful ownership of the actual note. When banks made their original loans to home buyers, they had the simple contract of title and note. However, when they sold the note to investments banks, who then separated the note from the title, and bundled these obligations with hundreds of others to create the RMBS, they simply put the title into a dummy holding company called MERS, and there was no longer a true and legal chain of ownership of the lien.
As time went on, the courts suddenly began to realize that the original banks, or the servicing agents who were simply collecting monthly mortgage payments, did not have the legal right or proper paperwork to foreclose on someones property that was in arrears. This has caused the current mortgage crisis that could affect not only the housing markets, but the sustainability of a multitude of banks.
So now, as a last ditch effort to compile the proper paperwork to satisfy the courts, banks are now suddenly offering loan re-modifications so that homeowners will by default, re-affirm the loan and justify a chain of ownership to the banks they did not have at the time of the foreclosure proceedings.
In an article from October 16th by Bruce Krasting on Zerohedge, he makes this assessment of the sudden change in lending offers to homeowners.
One possible response would be to get all troubled borrowers to reaffirm their debt, the second is to get the trouble borrowers back to paying something on the mortgage, even if it were a fraction of what was formerly owed on a monthly basis. A loan modification would achieve both results. When a borrower signs up for a loan mod they sign new papers. A portion of this process will re-establish any loan balance that is due. The language in the mod could have new foreclosure terms that eliminate the banker’s problem with past tainted documentation. Once a borrower makes a few months of new lowered payments they are, in effect, confirming their acceptance of the new terms.
Most Mods go bust in six months. So little is accomplished from the lenders perspective. But what if the lenders motivation for doing a Mod was not to get a borrower to a loan balance and monthly nut that they could pay, but rather the motivation was to circumvent the foreclosure trap the lenders are in? A Mod could legally resolve the problems.
The story I have been hearing is that tens of thousands of Mod letters have been sent by servicers in the past few weeks. Anyone who had an application pending is all of sudden getting the happy news in the mail.
It appears to be a strong possibility that the banks and institutions that desire to foreclose on property are now offering these re-modifications NOT as a means to help homeowners, but rather as a way to create new paperwork and legal affirmation by homeowners to establish a pseudo title and lien that will stand up in court, allowing the banks to foreclose and move on.
The Finance Examiner makes no assertion on what someone should do with their home, especially if they are in non-payment and in the process of foreclosure. However, it is highly suggested that you do nothing without the advice of an attorney, especially one in your area who has successfully argued the validity of improper ownership and documentation by the banks to foreclose on a mortgage, and do not simply accept a bank re-modification if there is ANY possibility the banks have no legal right to your property in its current state of ownership. You can check the MERS system database to see if your property is in it, and this will give you a piece to the puzzle that your note is part of a bundled RMBS, which now places the ownership of the lien in jeopardy by the bank.
Kenneth Schortgen, Jr. for The Examiner